10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)

ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2007

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number:  000-51287

SOUTHCREST FINANCIAL GROUP, INC.

(Exact Name of Registrant as Specified in its Charter)

Georgia	58-2256460
(State of Incorporation)	(I.R.S. Employer Identification No.)
600 North Glynn Street, Suite B, Fayetteville, Georgia	30214
(Address of Principal Executive Offices)	(Zip Code)

(770) 461-2781

(Registrant’s telephone number, including area code)

Securities Registered Pursuant to Section 12(b) of the Act:

None

Securities Registered Pursuant to Section 12(g) of the Act:

Common Stock, no par value stated

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

 Yes o   No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.

 Yes o   No ý

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý   No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   ý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o       Accelerated filer o       Non-accelerated filer oSmaller reporting company ý

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o   No ý

The aggregate market value of the registrant’s outstanding common stock held by nonaffiliates of the registrant as of June 30, 2007, was approximately $72,837,000, based on the registrant’s closing sales price as reported on the NASDAQ Over-the-Counter Bulletin Board.  There were  3,931,528 shares of the registrant’s common stock outstanding as of March 31, 2008.

DOCUMENTS INCORPORATED BY REFERENCE

Document	Parts Into Which Incorporated
Annual Report to Shareholders for the Year Ended December 31, 2007	Part II
Proxy Statement for the Annual Meeting of Shareholders to be held May 15, 2008	Part III

TABLE OF CONTENTS

		Page
PART I		1
ITEM 1.	BUSINESS	1
ITEM 1A.	RISK FACTORS	13
ITEM 1B.	UNRESOLVED STAFF COMMENTS	19
ITEM 2.	PROPERTIES	19
ITEM 3.	LEGAL PROCEEDINGS	19
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	20
PART II		20
ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUERS PURCHASES OF EQUITY SECURITIES	20
ITEM 6.	SELECTED FINANCIAL DATA	21
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS	21
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	21
ITEM 8.	FINANCIAL STATEMENTS	21
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	21
ITEM 9A(T).	CONTROLS AND PROCEDURES	22
ITEM 9B.	OTHER INFORMATION	23
PART III		23
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE	23
ITEM 11.	EXECUTIVE COMPENSATION	23
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	23
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE	24
ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	24
PART IV		25
ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	25
SIGNATURES
EXHIBIT INDEX

PART I

ITEM 1. BUSINESS

Cautionary Notice Regarding Forward Looking Statements

Some of the statements in this Report, including, without limitation, matters discussed under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operation,” of SouthCrest Financial Group, Inc. are “forward-looking statements” within the meaning of the federal securities laws. Forward-looking statements include statements about the competitiveness of the banking industry, potential regulatory obligations, our entrance and expansion into other markets, integration of recently acquired banks, pending or proposed acquisitions, our other business strategies, our expectations with respect to our allowance for loan losses and impaired loans, anticipated capital expenditures for our operations center, and other statements that are not historical facts. When we use words like “anticipate”, “believe”, “intend”, “expect”, “estimate”, “could”, “should”, “will”, and similar expressions, you should consider them as identifying forward-looking statements, although we may use other phrasing. These forward-looking statements involve risks and uncertainties and are based on our beliefs and assumptions, and on the information available to us at the time that these disclosures were prepared. Factors that may cause actual results to differ materially from those expressed or implied by such forward-looking statements include, among others, the following possibilities: (1) competitive pressures among depository and other financial institutions may increase significantly; (2) changes in the interest rate environment may reduce margins; (3) general economic conditions may be less favorable than expected, resulting in, among other things, a deterioration in credit quality and/or a reduction in demand for credit; (4) legislative or regulatory changes, including changes in accounting standards, may adversely affect the businesses in which we are engaged; (5) costs or difficulties related to the integration of our businesses, may be greater than expected; (6) deposit attrition, customer loss or revenue loss following acquisitions may be greater than expected; (7) competitors may have greater financial resources and develop products that enable such competitors to compete more successfully than us; and (8) adverse changes may occur in the equity markets.

Many of such factors are beyond our ability to control or predict, and readers are cautioned not to put undue reliance on such forward-looking statements. We disclaim any obligation to update or revise any forward-looking statements contained in this Report, whether as a result of new information, future events or otherwise.

Information About SouthCrest Financial Group, Inc.

Description of Business

SouthCrest Financial Group, Inc. (the “Company” or “SouthCrest”) is a bank holding company headquartered in Fayetteville, Georgia.  SouthCrest was incorporated under the laws of the State of Georgia on August 15, 1996 as Upson Bankshares, Inc. and is registered under the Bank Holding Company Act of 1956, as amended, and under the bank holding company laws of the State of Georgia.  SouthCrest conducts its operations through its wholly owned subsidiaries (collectively the “Banks”), Bank of Upson (“Upson”), The First National Bank of Polk County (“FNB Polk”), Peachtree (“Peachtree”) and Bank of Chickamauga (“Chickamauga”).  The Company was created on September 30, 2004 when Upson Bankshares, Inc. and First Polk Bankshares, Inc. merged and adopted the name SouthCrest Financial Group.

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Bank of Upson / Meriwether Bank and Trust / SouthCrest Bank

Bank of Upson was chartered in 1951 under the laws of the State of Georgia.  Upson is headquartered in Thomaston, Upson County, Georgia and operates a total of seven full-service banking locations and seventeen 24-hour ATM sites in Meriwether, Spalding, Fayette and Upson Counties in western Georgia.  In Upson County, Georgia, Upson operates its main office and a full-service branch.  In Meriwether County, Georgia, Upson operates three full-service branches under the trade name "Meriwether Bank & Trust:" the Manchester and Warm Springs branches were purchased in 1999, and the Luthersville branch was purchased in 2002.  In Fayette County, Georgia, Upson has opened two full-service de-novo branches which it operates under the trade name “SouthCrest Bank” – the Fayetteville branch was opened in 2004 and the Tyrone branch was opened in 2007.

Bank of Upson is a full service commercial bank focusing on meeting the banking needs of individuals and small- to medium-sized businesses.  Upson offers a broad line of banking and financial products and services customary for full service banks of similar size and character.  These services include consumer loans, real estate loans, and commercial loans as well as maintaining deposit accounts such as checking accounts, money market accounts, and a variety of certificates of deposit.  Bank of Upson attracts most of its deposits and conducts most of its lending transactions from and within its primary service area encompassing Upson, Fayette, and Meriwether Counties Georgia.

The First National Bank of Polk County

The First National Bank of Polk County was chartered in 1920 under the laws of the United States.  FNB Polk is headquartered in Cedartown, Polk County, Georgia and operates a total of three full-service banking locations and three ATM sites in Polk County in northwest Georgia.  FNB Polk operates out of its main office in Cedartown, Polk County, Georgia.  In addition to its main office, FNB Polk operates a branch office in Cedartown and another in the Rockmart, also in Polk County.  FNB Polk also operates three ATM machines; one at each of the branches.

FNB Polk is a full service commercial bank that provides community-banking services to the individuals and business in Polk County in northwest Georgia.  FNB Polk performs banking services customary for full service banks of similar size and character.  Such services include making real estate, commercial and consumer loans, providing other banking services such as traveler's checks, and maintaining deposit accounts such as checking, money market, consumer certificates of deposit and IRA accounts.

Peachtree Bank

Peachtree Bank was chartered in 1919 under the laws of the State of Alabama.  Peachtree is headquartered in Maplesville, Chilton County, Alabama and operates a total of two full-service banking locations in central Alabama.  On October 31, 2006, Peachtree became a wholly-owned subsidiary of the Company as a result of the merger of Maplesville Bancorp, Peachtree’s holding company, with SouthCrest.  Peachtree maintains its main office in Maplesville, Alabama and operates a branch office in Clanton, Alabama. Peachtree is a full-service community bank providing banking services in its primary trade area of Chilton County, Alabama. Such services include making real estate, commercial and consumer loans, as well as providing deposit accounts such as checking, money market, consumer certificates of deposit and IRA accounts.

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Bank of Chickamauga

Bank of Chickamauga was chartered in 1910 under the laws of the State of Georgia.  Chickamauga is headquartered in Chickamauga, Walker County, Georgia and operates a total of two full-service banking locations in north Georgia.  On July 1, 2007, Chickamauga became a wholly-owned subsidiary of the Company as a result of a share exchange between Chickamauga and SouthCrest.  Chickamauga maintains its main office and an additional branch office in Chickamauga, Georgia.  Chickamauga is a full-service community bank providing banking services in its primary trade area of Walker County, Georgia, which falls within the Chattanooga, Tennessee, MSA.  Such services include making real estate, commercial and consumer loans, as well as providing deposit accounts such as checking, money market, consumer certificates of deposit and IRA accounts.

Business Activities of the Company

Deposit Services.  Deposits are a key component of the Banks’ business, serving as a source of funding for lending as well as for increasing customer account relationships.  The Banks offer a variety of deposit services, including non-interest bearing checking accounts, interest bearing checking accounts, money market accounts, savings accounts, and time deposits of maturities ranging from three months to five years.  The primary sources of deposits for the Banks are businesses and individuals in their primary market areas.

Lending Services.  The Banks’ lending business consists primarily of making consumer loans to individuals, commercial loans to small and medium-sized businesses and professional organizations, and secured real estate loans, including residential and commercial construction loans, and first and second mortgage loans for the acquisition and improvement of personal residences.

Investment Services.  The Company provides investment services through its partnership with a full-service brokerage firm, and offering its customers brokerage services for stocks, bonds, mutual funds, IRA's, 529 plans, retirement plans, certificates of deposit, and insurance products.  The customer base for this service consists of individual investors, small businesses, and non-profit organizations.  This service is offered at the Bank of Upson through its division operating under the trade name “SouthCrest Investments” which was created in 1999 and has been in full service since 2001.  In 2005 FNB Polk began offering this service to its customers under the trade name “SouthCrest Investment Services.”

Trust Services.  SouthCrest also operates a full-service personal trust department through Bank of Upson.  The trust department provides estate analysis, consultation, estate and agency accounts, as well as non-profit agency services.  All trust-related record-keeping, back-office, and securities servicing is provided through a third-party.

Asset and Liability Management.  The Banks manage their assets and liabilities to provide adequate liquidity, and at the same time, to achieve the maximum net interest rate margin.  These management functions are conducted within the framework of written loan and investment policies.  The banks attempt to maintain a balanced position between rate sensitive assets and rate sensitive liabilities.

Market Area and Competition.  The Company operates in a highly competitive environment.  The Banks compete for deposits and loans with commercial banks, savings and loan associations, credit unions, finance companies, mutual funds, insurance companies and other financial entities operating locally and elsewhere.  In addition, because the Gramm-Leach-Bliley Act now permits banks, securities firms, and insurance companies to affiliate, a number of larger financial institutions and other corporations offering a wider variety of financial services than the Banks currently offer could enter our area and aggressively compete in the markets that the Banks serve.  Many of these competitors have

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substantially greater resources and lending limits than the Banks and may offer certain services that they do not or cannot provide.

We currently conduct business principally through the Banks’ fourteen branches in their market areas of Fayette, Meriwether, Polk, Upson and Walker Counties, Georgia and Chilton County, Alabama.  Based upon data available on the FDIC website as of June 30, 2007, SouthCrest’s total deposits ranked 1st among financial institutions in our market area, representing approximately 13.4% of the total deposits in our market area.  The table below shows our deposit market share collectively and by each Bank in the counties we serve according to data from the FDIC website as of June 30, 2007.  Subsequent to June 30, 2007, Upson opened a second branch in Fayette County that is not reflected in the table below.

Market	Number of Branches		Our Market Deposits		Total Market Deposits		Ranking		Market Share Percentage (%)
	(Dollar amounts in millions)
Upson
Fayette County		1	$	7	$	1,855		16		0.4	%
Meriwether County		3		83		221		1		37.7	%
Upson County		2		160		361		1		44.2	%
Upson Total		6		250		2,437		4		10.3	%
FNB Polk
Polk County		3		144		416		1		34.7	%
FNB Polk Total		3		144		416		1		34.7	%
Chickamauga
Walker County		2		50		459		5		10.9	%
Chickamauga Total		2		50		459		5		10.9	%
Georgia Total		11		444		3,312		1		13.4	%
Peachtree
Chilton County		2		54		406		4		13.4	%
Peachtree Total		2		54		406		4		13.4	%
Alabama Total		2		54		406		4		13.4	%
SouthCrest		13	$	498	$	3,718		1		13.4	%

Employees.  As of December 31, 2007, the Company and the Banks had a total of 227 full-time equivalent employees.  Certain executive officers of the Banks also serve as officers of SouthCrest Financial Group, Inc.  We consider our employee relations to be good, and we have no collective bargaining agreements with any employees.

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SUPERVISION AND REGULATION

Both the Company and the Banks are subject to extensive state and federal banking regulations that impose restrictions on and provide for general regulatory oversight of their operations.  These laws are generally intended to protect depositors and not shareholders.  Legislation and regulations authorized by legislation influence, among other things:

· how, when and where we may expand geographically;

· into what product or service market we may enter;

· how we must manage our assets; and

· under what circumstances money may or must flow between the parent bank holding company and a subsidiary bank.

Set forth below is an explanation of the major pieces of legislation affecting our industry and how that legislation affects our actions.  The following summary is qualified by reference to the statutory and regulatory provisions discussed.  Changes in applicable laws or regulations may have a material effect on our business and prospects, and legislative changes and the policies of various regulatory authorities may significantly affect our operations.  We cannot predict the effect that fiscal or monetary policies, or new federal or state legislation may have on our business and earnings in the future.

SouthCrest Financial Group, Inc.

Since the Company owns all of the capital stock of Upson, FNB Polk, Peachtree and Chickamauga, it is a bank holding company under the federal Bank Holding Company Act of 1956.  As a result, we are primarily subject to the supervision, examination and reporting requirements of the Bank Holding Company Act and the regulations of the Federal Reserve.  As a bank holding company located in Georgia, the Georgia Department of Banking and Finance also regulates and monitors all significant aspects of our operations.

Acquisitions of Banks. The Bank Holding Company Act requires every bank holding company to obtain the Federal Reserve’s prior approval before:

· acquiring direct or indirect ownership or control of any voting shares of any bank if, after the acquisition, the bank holding company will directly or indirectly own or control more than 5% of the bank’s voting shares;

· acquiring all or substantially all of the assets of any bank; or

· merging or consolidating with any other bank holding company.

Additionally, the Bank Holding Company Act provides that the Federal Reserve may not approve any of these transactions if it would result in or tend to create a monopoly, substantially lessen competition or otherwise function as a restraint of trade, unless the anticompetitive effects of the proposed transaction are clearly outweighed by the public interest in meeting the convenience and needs of the community to be served.  The Federal Reserve is also required to consider the financial and managerial resources and future prospects of the bank holding companies and banks concerned.  The Federal Reserve’s consideration of financial resources generally focuses on capital adequacy, which is discussed below.

Under the Bank Holding Company Act, if we are adequately capitalized and adequately managed, we or any other bank holding company located in Georgia may purchase a bank located outside of

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Georgia.  Conversely, an adequately capitalized and adequately managed bank holding company located outside of Georgia may purchase a bank located inside of Georgia.  In each case, however, restrictions may be placed on the acquisition of a bank that has only been in existence for a limited amount of time or will result in specified concentrations of deposits.  Currently, Georgia law prohibits acquisitions of banks that have been chartered for less than three years.  Because Upson, FNB Polk and Chickamauga have been chartered more than three years, this limitation under Georgia law would not affect SouthCrest’s ability to sell Upson, FNB Polk or Chickamauga.  Similarly, Alabama law prohibits the acquisition of Alabama state banks that have been chartered for less than five years.  However, since Peachtree has been chartered for more than five years, this law does not apply to sales of Peachtree.

Change in Bank Control. Subject to various exceptions, the Bank Holding Company Act and the Change in Bank Control Act, together with related regulations, require Federal Reserve approval prior to any person or company acquiring “control” of a bank holding company.  Control is conclusively presumed to exist if an individual or company acquires 25% or more of any class of voting securities of the bank holding company.  Control is rebuttably presumed to exist if a person or company acquires 10% or more, but less than 25%, of any class of voting securities and either:

· the bank holding company has registered securities under Section 12 of the Securities Act of 1934; or

· no other person owns a greater percentage of that class of voting securities immediately after the transaction.

Our common stock is currently registered under Section 12 of the Securities Exchange Act of 1934.  The regulations also provide a procedure for challenging any rebuttable presumption of control.

Permitted Activities. The Bank Holding Company Act has generally prohibited a bank holding company from engaging in activities other than banking or managing or controlling banks or other permissible subsidiaries and from acquiring or retaining direct or indirect control of any company engaged in any activities other than those determined by the Federal Reserve to be closely related to banking or managing or controlling banks as to be a proper incident thereto.Provisions of the Gramm-Leach-Bliley Act have expanded the permissible activities of a bank holding company that qualifies as a financial holding company.  Under the regulations implementing the Gramm-Leach-Bliley Act, a financial holding company may engage in additional activities that are financial in nature or incidental or complementary to financial activity.  Those activities include, among other activities, certain insurance and securities activities.

To qualify to become a financial holding company, the Banks and any other depository institution subsidiary of the Company must be well capitalized and well managed and must have a Community Reinvestment Act rating of at least “satisfactory.”  Additionally, the Company must file an election with the Federal Reserve to become a financial holding company and must provide the Federal Reserve with 30 days’ written notice prior to engaging in a permitted financial activity. While the Company meets the qualification standards applicable to financial holding companies, we have not elected to become a financial holding company at this time.

Support of Subsidiary Institutions.  Under Federal Reserve policy, we are expected to act as a source of financial strength for the Banks and to commit resources to support the Banks.  This support may be required at times when, without this Federal Reserve policy, we might not be inclined to provide it.  In addition, any capital loans made by us to the Bank will be repaid only after its deposits and various other obligations are repaid in full.  In the unlikely event of our bankruptcy, any commitment by it to a federal banking regulator to maintain the capital of the Banks will be assumed by the bankruptcy trustee and entitled to a priority of payment.

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The Banks

General. The Banks are subject to extensive state and federal banking regulations that impose restrictions on and provide for general regulatory oversight of our operations.  These laws are generally intended to protect depositors and not shareholders.  The following discussion describes the material elements of the regulatory framework that applies to us.

Since Upson and Chickamauga are commercial banks chartered under the laws of the State of Georgia, they are primarily subject to the supervision, examination and reporting requirements of the FDIC and the Georgia Department of Banking and Finance.  The FDIC and Georgia Department of Banking and Finance regularly examine each of Upson’s and Chickamauga’s operations and have the authority to approve or disapprove mergers, the establishment of branches and similar corporate actions.  Both regulatory agencies have the power to prevent the continuance or development of unsafe or unsound banking practices or other violations of law.

Since FNB Polk is chartered as a national bank, it is primarily subject to the supervision, examination and reporting requirements of the National Bank Act and the regulations of the Office of the Comptroller of the Currency.  The Office of the Comptroller of the Currency regularly examines FNB Polk’s operations and has the authority to approve or disapprove mergers, the establishment of branches and similar corporate actions.  The Office of the Comptroller of the Currency also has the power to prevent the continuance or development of unsafe or unsound banking practices or other violations of law.

Since Peachtree is a commercial bank chartered under the laws of the State of Alabama, it is primarily subject to the supervision, examination and reporting requirements of the FDIC and the Superintendent of Banking of the Alabama State Banking Department (the “Alabama State Banking Department”).  The FDIC and the Superintendent regularly examine Peachtree’s operations and have the authority to approve or disapprove mergers, the establishment of branches and similar corporate actions.  Both regulatory agencies also have the power to prevent the continuance or development of unsafe or unsound banking practices or other violations of law.

Because the Banks’ deposits are insured by the FDIC to the maximum extent provided by law, they are also subject to certain FDIC regulations.  The Banks are also subject to numerous state and federal statutes and regulations that affect their business, activities and operations.

Branching.  Under current Georgia law, each of Upson and Chickamauga may open branch offices throughout Georgia with the prior approval of the Georgia Department of Banking and Finance.  In addition, with prior regulatory approval, each of Upson and Chickamauga may acquire branches of existing banks located in Georgia.  National Banks are required by the National Bank Act to adhere to branching laws applicable to state banks in the states in which they are located.  Therefore, FNB Polk may open branch offices or acquire branches of existing banks located in Georgia with the approval of the Office of the Comptroller of the Currency.  Similarly, under current Alabama law, Peachtree may open branch offices throughout Alabama, or acquire branches of existing banks located in Alabama, with the prior approval of the Alabama State Banking Department.  The Banks and any other national or state-chartered bank generally may branch across state lines by merging with banks in other states if allowed by the applicable states’ laws.  Both Georgia and Alabama law, with limited exceptions, currently permit branching across state lines through interstate mergers.

Under the Federal Deposit Insurance Act, states may “opt-in” and allow out-of-state banks to branch into their state by establishing a new start-up branch in the state.  Currently, Alabama has opted in

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to this provision, while Georgia has not.  Therefore, interstate merger is the only method through which a bank located outside of Georgia may branch into Georgia.  This provides a limited barrier of entry into the Georgia banking markets, which protects us from an important segment of potential competition.  However, because Georgia has elected not to opt-in, Upson, FNB Polk and Chickamauga’s ability to establish a new start-up branch in another state may be limited.  Many states that have elected to opt-in have done so on a reciprocal basis, meaning that an out-of-state bank may establish a new start-up branch only if their home state has also elected to opt-in.  Consequently, until Georgia changes its election, the only way Upson, FNB Polk or Chickamauga will be able to branch into states that have elected to opt-in on a reciprocal basis will be through interstate merger.

Because Alabama has elected to opt-in on a reciprocal basis, any out-of-state bank may establish a new start-up branch in Alabama so long as that state’s banking law would also allow Alabama banks to establish start-up branches in that state.  Similarly, Peachtree may establish a new start-up branch in any state that has elected to opt-in on a reciprocal basis.

Prompt Corrective Action.  The Federal Deposit Insurance Corporation Improvement Act of 1991 establishes a system of prompt corrective action to resolve the problems of undercapitalized financial institutions.  Under this system, the federal banking regulators have established five capital categories (well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized) in which all institutions are placed.  The federal banking agencies have also specified by regulation the relevant capital levels for each of the other categories.  At December 31, 2007, the Banks qualified for the well-capitalized category.

 Federal banking regulators are required to take various mandatory supervisory actions and are authorized to take other discretionary actions with respect to institutions in the three undercapitalized categories.  The severity of the action depends upon the capital category in which the institution is placed.  Generally, subject to a narrow exception, the banking regulator must appoint a receiver or conservator for an institution that is critically undercapitalized.

FDIC Insurance Assessments. The FDIC has adopted a risk-based assessment system for insured depository institutions that takes into account the risks attributable to different categories and concentrations of assets and liabilities.  The system assesses higher rates on those institutions that pose greater risks to the Deposit Insurance Fund (the “DIF”).  The FDIC places each institution in one of four risk categories using a two-step process based first on capital ratios (the capital group assignment) and then on other relevant information (the supervisory group assignment).  Within the lower risk category, Risk Category I, rates will vary based on each institution’s CAMELS component ratings, certain financial ratios, and long-term debt issuer ratings.

Capital group assignments are made quarterly and an institution is assigned to one of three capital categories: (1) well capitalized; (2) adequately capitalized; and (3) undercapitalized.  These three categories are substantially similar to the prompt corrective action categories described above, with the “undercapitalized” category including institutions that are undercapitalized, significantly undercapitalized and critically undercapitalized for prompt corrective action purposes.  The FDIC also assigns an institution to one of three supervisory subgroups based on a supervisory evaluation that the institution’s primary federal banking regulator provides to the FDIC and information that the FDIC determines to be relevant to the institution’s financial condition and the risk posed to the deposit insurance funds.  Assessments range from 5 to 43 cents per $100 of deposits, depending on the institution’s capital group and supervisory subgroup.  Institutions that are well capitalized will be charged a rate between 5 and 7 cents per $100 of deposits.

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The FDIC may terminate its insurance of deposits if it finds that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.

Community Reinvestment Act.  The Community Reinvestment Act requires that, in connection with examinations of financial institutions within their respective jurisdictions, the federal bank regulators shall evaluate the record of each financial institution in meeting the credit needs of its local community, including low and moderate-income neighborhoods.  These facts are also considered in evaluating mergers, acquisitions and applications to open a branch or facility.  Failure to adequately meet these criteria could impose additional requirements and limitations on the Banks.  Additionally, the Banks must publicly disclose the terms of various Community Reinvestment Act-related agreements.

Allowance for Loan and Lease Losses.  The Allowance for Loan and Lease Losses (the “ALLL”) represents one of the most significant estimates in the Bank’s financial statements and regulatory reports.  Because of its significance, the Banks have developed systems by which they develop, maintain and document comprehensive, systematic and consistently applied processes for determining the amounts of the ALLL and the provision for loan and lease losses.  The Interagency Policy Statement on the Allowance for Loan and Lease Losses, issued on December 13, 2006, encourages all banks to ensure controls are in place to consistently determine the ALLL in accordance with GAAP, the bank’s stated policies and procedures, management’s best judgment and relevant supervisory guidance.  Consistent with supervisory guidance, the Banks maintain a prudent and conservative, but not excessive, ALLL, that is at a level appropriate to cover estimated credit losses on individually evaluated loans determined to be impaired as well as estimated credit losses inherent in the remainder of the loan and lease portfolio.  The Banks’ estimates of credit losses reflect consideration of all significant factors that affect the collectibility of the portfolio as of the evaluation date.  See “Management’s Discussion and Analysis – Critical Accounting Policies.”

Commercial Real Estate Lending.  The Banks’ lending operations may be subject to enhanced scrutiny by federal banking regulators based on their concentrations of commercial real estate loans.  On December 6, 2006, the federal banking regulators issued final guidance to remind financial institutions of the risk posed by commercial real estate (“CRE”) lending concentrations.  CRE loans generally include land development, construction loans and loans secured by multifamily property, and nonfarm, nonresidential real property where the primary source of repayment is derived from rental income associated with the property.

Other Regulations. Interest and other charges collected or contracted for by the Banks are subject to state usury laws and federal laws concerning interest rates.  The Banks’ loan operations are also subject to federal laws applicable to credit transactions, such as the:

· Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;

· Home Mortgage Disclosure Act of 1975, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves;

· Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit;

· Fair Credit Reporting Act of 1978, as amended by the Fair and Accurate Credit Transactions Act, governing the use and provision of information to credit reporting agencies, certain identity theft protections, and certain credit and other disclosures;

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· Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies;

· Soldiers’ and Sailors’ Civil Relief Act of 1940, as amended by the Servicemembers’ Civil Relief Act, governing the repayment terms of, and property rights underlying, secured obligations of persons currently on active duty with the United States military;

· Talent Amendment in the 2007 Defense Authorization Act, establishing a 36% annual percentage rate ceiling, which includes a variety of charges including late fees, for consumer loans to military service members and their dependents; and

· rules and regulations of the various federal banking regulators charged with the responsibility of implementing these federal laws.

The Banks’ deposit operations are subject to federal laws applicable to depository accounts, such as the:

· Truth-In-Savings Act, requiring certain disclosures for consumer deposit accounts;

· Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records;

· Electronic Funds Transfer Act and Regulation E issued by the Federal Reserve to implement that act, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services; and

· rules and regulations of the various federal banking regulators charged with the responsibility of implementing these federal laws.

Capital Adequacy

The Company and the Banks are required to comply with the capital adequacy standards established by the Federal Reserve, in the case of the Company, the FDIC, in the case of Upson, Peachtree and Chickamauga, and the Office of the Comptroller of the Currency, in the case of FNB Polk.  The Federal Reserve has established a risk-based and a leverage measure of capital adequacy for bank holding companies.  The Banks are also subject to risk-based and leverage capital requirements adopted by their respective federal agency, both of which are substantially similar to those adopted by the Federal Reserve for bank holding companies.

The risk-based capital standards are designed to make regulatory capital requirements more sensitive to differences in risk profiles among banks and bank holding companies, to account for off-balance-sheet exposure, and to minimize disincentives for holding liquid assets.  Assets and off-balance-sheet items, such as letters of credit and unfunded loan commitments, are assigned to broad risk categories, each with appropriate risk weights.  The resulting capital ratios represent capital as a percentage of total risk-weighted assets and off-balance-sheet items.

The minimum guideline for the ratio of total capital to risk-weighted assets is 8%.  Total capital consists of two components; Tier 1 Capital and Tier 2 Capital.  Tier 1 Capital generally consists of common stockholders’ equity, minority interests in the equity accounts of consolidated subsidiaries, qualifying noncumulative perpetual preferred stock, and a limited amount of qualifying cumulative perpetual preferred stock, less goodwill and other specified intangible assets.  Tier 1 Capital must equal at least 4% of risk-weighted assets.  Tier 2 Capital generally consists of subordinated debt, other preferred

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stock and hybrid capital, and a limited amount of loan loss reserves.  The total amount of Tier 2 Capital is limited to 100% of Tier 1 Capital.

In addition, the Federal Reserve has established minimum leverage ratio guidelines for bank holding companies.  These guidelines provide for a minimum ratio of Tier 1 Capital to average assets, less goodwill and other specified intangible assets, of 3% for bank holding companies that meet specified criteria, including having the highest regulatory rating and implementing the Federal Reserve’s risk-based capital measure for market risk.  All other bank holding companies generally are required to maintain a leverage ratio of at least 4%.The guidelines also provide that bank holding companies experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels without reliance on intangible assets.  The Federal Reserve considers the leverage ratio and other indicators of capital strength in evaluating proposals for expansion or new activities.

Failure to meet capital guidelines could subject a bank or bank holding company to a variety of enforcement remedies, including issuance of a capital directive, the termination of deposit insurance by the FDIC, a prohibition on accepting brokered deposits and certain other restrictions on its business.  As described above, significant additional restrictions can be imposed on FDIC-insured depository institutions that fail to meet applicable capital requirements.  See “The Banks – Prompt Corrective Action” above.

See Note 14 in the “Notes to Consolidated Financial Statements” for the capital ratios of SouthCrest, Upson, FNB Polk, Peachtree and Chickamauga.

Payment of Dividends

The Company is a legal entity separate and distinct from the Banks.  The principal sources of the Company’s cash flow, including cash flow to pay dividends to its shareholders, are dividends that the Banks pay to their sole shareholder, the Company.  Statutory and regulatory limitations apply to the Banks’ payment of dividends.  If, in the opinion of the federal banking regulator, any of our Banks were engaged in or about to engage in an unsafe or unsound practice, the federal banking regulator could require, after notice and a hearing, that it stop or refrain from engaging in the questioned practice.  The federal banking agencies have indicated that paying dividends that deplete a depository institution’s capital base to an inadequate level would be an unsafe and unsound banking practice.  Under the Federal Deposit Insurance Corporation Improvement Act of 1991, a depository institution may not pay any dividend if payment would cause it to become undercapitalized or if it already is undercapitalized.  Moreover, the federal agencies have issued policy statements that provide that bank holding companies and insured banks should generally only pay dividends out of current operating earnings.  See “The Banks—Prompt Corrective Action.”

The Georgia Department of Banking and Finance also regulates each of Upson’s and Chickamauga’s dividend payments and must approve dividend payments by either bank that would exceed 50% of their respective net incomes for the prior year.  Our payment of dividends may also be affected or limited by other factors, such as the requirement to maintain adequate capital above regulatory guidelines.

The Alabama State Banking Department also regulates Peachtree’s dividend payments and must approve dividend payments that would exceed 50% of Peachtree’s net income for the prior year.  Our payment of dividends may also be affected or limited by other factors, such as the requirement to maintain adequate capital above regulatory guidelines.  Under Alabama law, a bank may not pay a dividend in excess of 90% of its net earnings until the bank’s surplus is equal to at least 20% of its capital.  

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Peachtree is also required by Alabama law to obtain the prior approval of the Alabama State Banking Department for its payment of dividends if the total of all dividends declared by Peachtree in any calendar year will exceed the total of (1) Peachtree’s net earnings (as defined by statute) for that year, plus (2) its retained net earnings for the proceeding two years, less any required transfers to surplus.  In addition, no dividends may be paid from Peachtree’s surplus without prior written approval of the Superintendent, and Peachtree may not pay any dividend that would cause its Tier 1 Capital ratio to fall below 8%.

FNB Polk is required by federal law to obtain prior approval of the OCC for payments of dividends if the total of all dividends declared by the Bank in any year will exceed (1) the total of the FNB Polk’s net profits for that year, plus (2) the FNB Polk’s retained net profits of the preceding two years, less any required transfers to surplus.

The payment of dividends by the Company and the Banks may also be affected by other factors, such as the requirement to maintain adequate capital above regulatory guidelines.  At December 31, 2007, the Banks could each pay cash dividends without prior regulatory approval, subject to the limitations described herein.

Restrictions on Transactions with Affiliates

The Company and the Banks are subject to the provisions of Section 23A of the Federal Reserve Act.  Section 23A places limits on the amount of:

· a bank’s loans or extensions of credit to affiliates;

· a bank’s investment in affiliates;

· assets a bank may purchase from affiliates, except for real and personal property exempted by the Federal Reserve;

· loans or extensions of credit made by a bank to third parties collateralized by the securities or obligations of affiliates; and

· a bank’s guarantee, acceptance or letter of credit issued on behalf of an affiliate.

The total amount of the above transactions is limited in amount, as to any one affiliate, to 10% of a bank’s capital and surplus and, as to all affiliates combined, to 20% of a bank’s capital and surplus.  In addition to the limitation on the amount of these transactions, each of the above transactions must also meet specified collateral requirements.  The Banks must also comply with other provisions designed to avoid the taking of low-quality assets.

The Company and the Banks are also subject to the provisions of Section 23B of the Federal Reserve Act which, among other things, prohibit an institution from engaging in the above transactions with affiliates unless the transactions are on terms substantially the same, or at least as favorable to the institution or its subsidiaries, as those prevailing at the time for comparable transactions with nonaffiliated companies.

The Banks are also subject to restrictions on extensions of credit to its executive officers, directors, principal shareholders and their related interests.  These extensions of credit (1) must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with third parties, and (2) must not involve more than the normal risk of repayment or present other unfavorable features.

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Proposed Legislation and Regulatory Action

New regulations and statutes are regularly proposed that contain wide-ranging changes to the structures, regulations and competitive relationships of financial institutions operating or doing business in the United States.  We cannot predict whether or in what form any proposed regulation or statute will be adopted or the extent to which our business may be affected by any new regulation or statute.

Effect of Governmental Monetary Policies

Our earnings are affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies.  The Federal Reserve’s monetary policies have had, and are likely to continue to have, an important impact on the operating results of commercial banks through its power to implement national monetary policy in order, among other things, to curb inflation or combat a recession.  The monetary policies of the Federal Reserve affect the levels of bank loans, investments and deposits through its control over the issuance of United States government securities, its regulation of the discount rate applicable to member banks and its influence over reserve requirements to which member banks are subject.  We cannot predict the nature or impact of future changes in monetary and fiscal policies.

ITEM 1A. RISK FACTORS

An investment in our common stock involves risks.  If any of the following risks or other risks, which have not been identified or which we may believe are immaterial or unlikely, actually occur, our business, financial condition and results of operations could be harmed.  In such a case, the trading price of our common stock could decline, and you may lose all or part of your investment.  The risks discussed below also include forward-looking statements, and our actual results may differ substantially from those discussed in these forward-looking statements.

Risks Related to Our Business.

We could suffer loan losses from a decline in credit quality.

We could sustain losses if borrowers, guarantors and related parties fail to perform in accordance with the terms of their loans. We have adopted underwriting and credit monitoring procedures and policies, including the establishment and review of the allowance for credit losses that we believe are appropriate to minimize this risk by assessing the likelihood of nonperformance, tracking loan performance and diversifying our credit portfolio.  These policies and procedures, however, may not prevent unexpected losses that could materially adversely affect our results of operations.

Our net interest income could be negatively affected by the Federal Reserve’s recent interest rate adjustments, as well as by competition in our market area.

As a financial institution, our earnings are significantly dependent upon our net interest income, which is the difference between the interest income that we earn on interest-earning assets, such as investment securities and loans, and the interest expense that we pay on interest-bearing liabilities, such as deposits and borrowings. Therefore, any change in general market interest rates, including changes resulting from changes in the Federal Reserve’s fiscal and monetary policies, affects us more than non-financial institutions and can have a significant effect on our net interest income and total income. Our assets and liabilities may react differently to changes in overall market rates or conditions because there may be mismatches between the repricing or maturity characteristics of the assets and liabilities. As a

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result, an increase or decrease in market interest rates could have material adverse effects on our net interest margin and results of operations.

In response to the dramatic deterioration of the subprime, mortgage, credit and liquidity markets, the Federal Reserve recently has taken action on six occasions to reduce interest rates by a total of 300 basis points since September 2007, which likely will reduce our net interest income during the first half of 2008 and the foreseeable future. Any reduction in our net interest income will negatively affect our business, financial condition, liquidity, operating results, cash flows and/or the price of our securities. Additionally, in 2008, we expect to have continued margin pressure given these interest rate reductions, along with elevated levels of non-performing assets.

An economic downturn, especially one affecting our market areas, could adversely affect our financial condition, results of operations or cash flows.

Our success depends upon the growth in population, income levels, deposits and housing starts in our primary market areas.  If the communities in which we operate do not grow, or if prevailing economic conditions locally or nationally are unfavorable, our business may not succeed. Unpredictable economic conditions may have an adverse effect on the quality of our loan portfolio and our financial performance. Economic recession over a prolonged period or other economic problems in our market areas could have a material adverse impact on the quality of the loan portfolio and the demand for our products and services.  Future adverse changes in the economies in our market areas may have a material adverse effect on our financial condition, results of operations or cash flows.  Further, the banking industry in Georgia is affected by general economic conditions such as inflation, recession, unemployment and other factors beyond our control.  As a community bank, we are less able to spread the risk of unfavorable local economic conditions than larger or more regional banks. Moreover, we cannot give any assurance that we will benefit from any market growth or favorable economic conditions in our primary market areas even if they do occur.

In addition to considering the financial strength and cash flow characteristics of borrowers, we often secure loans with real estate collateral.  The real estate collateral in each case provides an alternate source of repayment in the event of default by the borrower and may deteriorate in value during the time the credit is extended.  The market value of the real estate securing our loans as collateral has been adversely affected by the slowing economy and unfavorable changes in economic conditions in our market areas and could be further adversely affected in the future.

As of December 31, 2007, approximately 82% of our loans receivable were secured by real estate. Any sustained period of increased payment delinquencies, foreclosures or losses caused by the adverse market and economic conditions, including the downturn in the real estate market, in our markets will adversely affect the value of our assets, revenues, results of operations and financial condition. Currently, we are experiencing such an economic downturn, and if it continues, our operations could be further adversely affected.

Most of our loans are concentrated in our primary market area.  Consequently, a decline in local economic conditions may have a proportionally greater effect on our earnings and capital than on the earnings and capital of larger financial institutions whose real estate loan portfolios are geographically diverse.

Opening new offices may not result in increased assets or revenues for us.

The investment necessary for branch expansion may negatively impact our efficiency ratio.  There is a risk that we will be unable to manage our growth, as the process of opening new branches may

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divert our time and resources.  There is also risk that we may fail to open any additional branches, and a risk that, if we do open these branches, they may not be profitable which would negatively impact our results of operations.

Our business strategy includes the continuation of growth plans, and our financial condition and results of operations could be negatively affected if we fail to grow or fail to manage our growth effectively.

We intend to continue pursuing a growth strategy for our business. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in growth stages of development. We cannot assure you we will be able to expand our market presence in our existing markets or successfully enter new markets or that any such expansion will not adversely affect our results of operations.  Failure to manage our growth effectively could have a material adverse effect on our business, financial condition, results of operations, or future prospects, and could adversely affect our ability to successfully implement our business strategy.  Also, if our growth occurs more slowly than anticipated or declines, our results of operations could be materially adversely affected.

Our ability to grow successfully will depend on a variety of factors including the continued availability of desirable business opportunities, the competitive responses from other financial institutions in our market areas and our ability to manage our growth. While we believe we have the management resources and internal systems in place to manage our future growth, there can be no assurance that growth opportunities will be available or growth will be managed successfully.

Our plans for future expansion depend, in some instances, on factors beyond our control, and an unsuccessful attempt to achieve growth could have a material adverse effect on our business, financial condition, results of operations and future prospects.

We expect to continue to engage in new branch expansion in the future.  We may also seek to acquire other financial institutions, or parts of those institutions.  Expansion involves a number of risks, including:

• the time and costs of evaluating new markets, hiring experienced local management and opening new offices;

• the time lags between these activities and the generation of sufficient assets and deposits to support the costs of the expansion;

• we may not be able to finance an acquisition without diluting the interests of our existing shareholders;

• in the event of an acquisition, costs or difficulties related to the integration of our businesses may be greater than expected, and we may experience deposit attrition, customer loss or revenue loss that is greater than expected

• the diversion of our management’s attention to the negotiation of a transaction may detract from their business productivity;

• we may enter into new markets where we lack experience; and

• we may introduce new products and services with which we have no prior experience into our business.

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If we fail to retain our key employees, our growth and profitability could be adversely affected.

Our success is, and is expected to remain, highly dependent on our Chairman, Daniel Brinks, and President and CEO, Larry Kuglar.   This is particularly true because, as a community bank, we depend on our management team’s ties to the community to generate business for us. Our growth will continue to place significant demands on our management, and the loss of any such person’s services may have an adverse effect upon our growth and profitability.  In addition, loss of key loan officers can also adversely affect our loan growth, which may adversely impact future profitability.

Our recent results may not be indicative of our future results, and may not provide guidance to assess the risk of an investment in our common stock.

We may not be able to sustain our historical rate of growth or may not even be able to grow our business at all.  In addition, our recent and rapid growth may distort some of our historical financial ratios and statistics.  In the future, we may not have the benefit of several recently favorable factors, such as a generally increasing interest rate environment, a strong residential and commercial mortgage market or the ability to find suitable expansion opportunities. Various factors, such as economic conditions, regulatory and legislative considerations and competition, may also impede or prohibit our ability to expand our market presence.  If we experience a significant decrease in our historical rate of growth, our results of operations and financial condition may be adversely affected due to a high percentage of our operating costs being fixed expenses.

Competition from other financial institutions may adversely affect our profitability.

The banking business is highly competitive, and we experience strong competition from many other financial institutions. We compete with commercial banks, credit unions, savings and loan associations, mortgage banking firms, consumer finance companies, securities brokerage firms, insurance companies, money market funds and other financial institutions, which operate in our primary market areas and elsewhere.  Presently 35 banks serve our market area with a total of 99 branches.

We compete with these institutions both in attracting deposits and in making loans.  In addition, we have to attract our customer base from other existing financial institutions and from new residents. Many of our competitors are well-established and much larger financial institutions. While we believe we can and do successfully compete with these other financial institutions in our markets, we may face a competitive disadvantage as a result of our smaller size and lack of geographic diversification.

Although we compete by concentrating our marketing efforts in our primary market area with local advertisements, personal contacts and greater flexibility in working with local customers, we can give no assurance that this strategy will be successful.

As a community bank, we have different lending risks than larger banks.

We provide services to our local communities.  Our ability to diversify our economic risks is limited by our own local markets and economies.  We lend primarily to small to medium-sized businesses, and, to a lesser extent, individuals which may expose us to greater lending risks than those of banks lending to larger, better-capitalized businesses with longer operating histories.

We manage our credit exposure through careful monitoring of loan applicants and loan concentrations in particular industries, and through loan approval and review procedures. We have established an evaluation process designed to determine the adequacy of our allowance for loan losses. While this evaluation process uses historical and other objective information, the classification of loans

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and the establishment of loan losses is an estimate based on experience, judgment and expectations regarding our borrowers, the economies in which we and our borrowers operate, as well as the judgment of our regulators. We cannot assure you that our loan loss reserves will be sufficient to absorb future loan losses or prevent a material adverse effect on our business, financial condition, or results of operations.

Our directors and executive officers own a significant portion of our common stock and can influence stockholder decisions.

Our directors and executive officers, as a group, beneficially owned approximately 23% of our fully diluted outstanding common stock as of December 31, 2007.  As a result of their ownership, the directors and executive officers have the ability, if they voted their shares in concert, to influence the outcome of all matters submitted to our stockholders for approval, including the election of directors.

Risks Related to our Industry

Current trends in the mortgage loan markets may adversely affect our credit quality and profitability.

Since the beginning of 2007, the market has seen several subprime lenders and hedge funds that had invested in loans supported by real estate collateral declare bankruptcy and discontinue operations, while other lenders have continued to put in place more stringent underwriting criteria.  Recent losses on mortgage-backed investment securities recorded by some larger financial institutions have resulted in reduced valuations, demand and liquidity for these securities.

These challenges have affected the mortgage loan marketplace by increasing the borrower’s cost of funds for loans supported by real estate.  More stringent loan underwriting standards continue to reduce the number of real estate borrowers who can find financing in the marketplace, and this continues to reduce the number of properties sold and refinanced.  The number of residential properties on the market has continued to increase, and in certain markets, including our own, there has been increasing downward pressure on the selling prices of new and existing homes and also in the sales market values of existing properties, which are utilized as comparisons in valuing real estate collateral.  This affects the ability of some borrowers, particularly those in construction and development, to sell the properties securing their loans, which in turn makes it difficult for them to make the scheduled repayments on those loans.  The impact of the described changes in the economy as a whole, and the real estate marketplace specifically, has had a negative effect on our ability to grow our loan levels and on the values of the collateral underlying our loans.  These changes could limit growth in interest income and could also cause an increase in expenses associated with collecting on loans, foreclosing on real estate collateral, and selling properties that have already been foreclosed.  The potential impact on the Company will depend on the duration and depth of the real estate market downturn, which will also be affected by the financial market’s response to correcting the problems that have affected the market, including providing accommodations to borrowers in default or who are experiencing financial difficulty.

Changes in monetary policies may have an adverse effect on our business, financial condition and results of operations.

Our financial condition and results of operations are affected by credit policies of monetary authorities, particularly the Federal Reserve.  Actions by monetary and fiscal authorities, including the Federal Reserve, could have an adverse effect on our deposit levels, loan demand or business and earnings.

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Our ability to pay dividends is limited and we may be unable to pay future dividends.  As a result, capital appreciation, if any, of our common stock may be your sole opportunity for gains on your investment for the foreseeable future.

We cannot make assurances that we will have the ability to continuously pay dividends in the future.  Any future determination relating to dividend policy will be made at the discretion of our Board of Directors and will depend on a number of factors, including our future earnings, capital requirements, financial condition, future prospects, regulatory restrictions and other factors that our Board of Directors may deem relevant.  The holders of our common stock are entitled to receive dividends when, and if declared by our Board of Directors out of funds legally available for that purpose.  As part of our consideration to pay cash dividends, we intend to retain adequate funds from future earnings to support the development and growth of our business.  In addition, our ability to pay dividends is restricted by federal policies and regulations.  It is the policy of the Federal Reserve that bank holding companies should pay cash dividends on common stock only out of net income available over the past year and only if prospective earnings retention is consistent with the organization’s expected future needs and financial condition.  Further, our principal source of funds to pay dividends is cash dividends that we receive from our subsidiary banks.

Environmental liability associated with lending activities could result in losses.

In the course of our business, we may foreclose on and take title to properties securing our loans.  If hazardous substances are discovered on any of these properties, we may be liable to governmental entities or third parties for the costs of remediation of the hazard, as well as for personal injury and property damage.  Many environmental laws can impose liability regardless of whether we knew of, or were responsible for, the contamination.  In addition, if we arrange for the disposal of hazardous or toxic substances at another site, we may be liable for the costs of cleaning up and removing those substances from the site, even if we neither own nor operate the disposal site.  Environmental laws may require us to incur substantial expenses and may materially limit the use of properties that we acquire through foreclosure, reduce their value or limit our ability to sell them in the event of a default on the loans they secure.  In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase our exposure to environmental liability.

We are subject to extensive regulation that could limit or restrict our activities and impose financial requirements or limitations on the conduct of our business, which limitations or restrictions could adversely affect our profitability.

As a bank holding company, we are primarily regulated by the Federal Reserve.  Our subsidiary banks are regulated by the FDIC, the Georgia Department of Banking and Finance, the Alabama State Banking Department and the OCC. Our compliance with these regulations is costly and may limit our growth and restrict certain of our activities, including payment of dividends, mergers and acquisitions, investments, loans and interest rates charged, interest rates paid on deposits and locations of offices. We are also subject to capital requirements of our regulators.

The laws and regulations applicable to the banking industry could change at any time, and we cannot predict the effects of these changes on our business and profitability.  Because government regulation greatly affects the business and financial results of all commercial banks and bank holding companies, our cost of compliance could adversely affect our ability to operate profitably.

The Sarbanes-Oxley Act of 2002, the related rules and regulations promulgated by the SEC that currently apply to us and the related exchange rules and regulations, have increased the scope, complexity

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and cost of corporate governance, reporting and disclosure practices.  As a result, we may experience greater compliance costs.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not Applicable.

ITEM 2. PROPERTIES

SouthCrest maintains its executive offices in leased office space at 600 North Glynn Street, Suite B, Fayetteville, Georgia.

Bank of Upson's main banking office is located at 108 South Church Street, Thomaston, Georgia  30286.  In 2005, Upson began rebuilding this facility, enlarging it from approximately 16,000 square feet to 26,000 square feet.  This project was completed in 2007.  Bank of Upson's operations center is located at 210A West Main Street, Thomaston, Georgia  30286.  In 2007, Bank of Upson began building a new operations center in Thomaston, Georgia.  Bank of Upson also owns banking offices at the following locations:  (i) 943 North Church Street, Thomaston, Georgia  30286, (ii) 406 West Main Street, Manchester, Georgia  31816, (iii) 121 Broad Street, Warm Springs, Georgia 31830, and (iv) 14 North Main Street, Luthersville, Georgia  30251.  Bank of Upson leases two branches in Fayette County, Georgia, at 600 North Glynn Street, Fayetteville, Georgia  30214, and 105 St. Stephens Court, Suite A,  Tyrone, Georgia 30290.  Bank of Upson’s offices in Manchester, Warm Springs, and Luthersville, Georgia are located within Meriwether County, Georgia and do business as Meriwether Bank & Trust.  The offices in Fayetteville and Tyrone, Georgia are located in Fayette County and do business as SouthCrest Bank.  Bank of Upson owns 17 ATMs, which are located within Upson, Fayette, and Meriwether Counties.

The First National Bank of Polk County's main office is at 967 North Main Street, Cedartown, Georgia.  The main office was built in 1991 and occupies 26,500 square feet.  FNB Polk also owns and operates a full-service downtown branch at 117 West Avenue, Cedartown, Georgia.  The branch occupies 10,000 square feet.  In 1973, FNB Polk opened a full-service Rockmart branch at 131 West Elm Street, Rockmart, Georgia.  The branch has been enlarged from 4,200 square feet to approximately 9,200 square feet in project completed in 2005 at a cost of $895,000.

Peachtree Bank’s main office is at 9411 Highway 22, Maplesville, Alabama.  The main office was built in 1961 and occupies 4,200 square feet.  Peachtree also owns and operates a full service branch located at 1501 North 17th Street in Clanton, Alabama.  This branch was built in 1994 and occupies 3,500 square feet.

Bank of Chickamauga’s main office is at 201 Gordon Street, Chickamauga, Georgia.  The main office was built in 1910 and occupies 12,000 square feet.  Chickamauga also owns and operates a full service branch located at 112 Lafayette Road, Chickamauga, Georgia.  This branch was established in 1974 and occupies 2,300 square feet.

ITEM 3. LEGAL PROCEEDINGS

There are no material pending legal proceedings to which the Company is a party or of which any of its properties are subject, nor are there material proceedings known to the Company to be contemplated by any governmental authority.   Additionally, the Company is unaware of any material proceedings, pending or contemplated, in which any existing or proposed director, officer or affiliate, or any principal

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security holder of the Company or any associate of any of the foregoing, is a party or has an interest adverse to the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted during the fourth quarter of the fiscal year ended December 31, 2007 to a vote of shareholders of SouthCrest Financial Group, Inc., through the solicitation of proxies or otherwise.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

In December, 2004 our common stock began trading in the over-the-counter market under the symbol “SCSG.”  The development of an active secondary market requires the existence of an adequate number of willing buyers and sellers.  Historically, the reported trading volume would indicate a lack of activity in the secondary market for the Company’s common stock.  The lack of activity in the secondary market for the Company’s common stock may materially impact a shareholder’s ability to promptly sell Company common stock at a price acceptable to the selling shareholder.

The following table sets forth the high and low bid information for transactions in our common stock for the previous two years on the Nasdaq Over-the-Counter Bulletin Board.  These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

	2007				2006
	High		Low		High		Low
First Quarter	$	24.80	$	23.02	$	24.00	$	21.50
Second Quarter	$	25.50	$	23.00	$	24.50	$	23.50
Third Quarter	$	23.50	$	21.40	$	26.00	$	22.20
Fourth Quarter	$	22.00	$	19.50	$	25.50	$	22.80

On March 31, 2008, the Company had approximately 565 shareholders of record of our common stock.

The Company generally declares a dividend on the first business day of each quarter, to be paid on the last business day of that month, with the record date normally being two weeks prior to the payment date.  The table below shows the quarterly dividends paid during 2007 and 2006.

	2007		2006
First Quarter	$	0.130	$	0.125
Second Quarter		0.130		0.125
Third Quarter		0.130		0.125
Fourth Quarter		0.130		0.125

The principal source of the Company’s cash flow, including cash flow to pay dividends to its shareholders, is dividends that the Bank pays to the Company as its sole shareholder.  Statutory and

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regulatory limitations apply to the Banks’ payment of dividends to the Company, as well as to the Company’s payment of dividends to its shareholders.  For a complete discussion of restrictions on dividends, see “Part I—Item 1.  Description of Business—Supervision and Regulation—Payment of Dividends.”

The table below sets forth information regarding purchases of the Company’s common stock by the Company and the Company’s Employee Stock Ownership Plan whose trustees are executive officers of the Company.  All shares were purchased in open market transactions.

Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
October 2007		-	$	-		-		-
November 2007		36,680	$	21.91		-		-
December 2007		-	$	-		-		-
Total		36,680	$	21.91		-		-

ITEM 6. SELECTED FINANCIAL DATA

Pursuant to the revised disclosure requirements for smaller reporting companies effective February 4, 2008, no disclosure under this Item is required.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS

The response to this item is included in the section of the same title contained in the Company's 2007 Annual Report to Shareholders and is incorporated herein by reference.  See Exhibit 13.1.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Pursuant to the revised disclosure requirements for smaller reporting companies effective February 4, 2008, no disclosure under this Item is required.

ITEM 8. FINANCIAL STATEMENTS

The response to this item is included in the section of the same title contained in the Company's 2007 Annual Report to Shareholders and is incorporated herein by reference.  See Exhibit 13.2.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not Applicable.

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ITEM 9A(T). CONTROLS AND PROCEDURES

Disclosure Controls

As of the end of the period covered by this Annual Report on Form 10-K, our principal executive officer and principal financial officer have evaluated the effectiveness of our “disclosure controls and procedures” (“Disclosure Controls”).  Disclosure Controls, as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this Annual Report, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.  Disclosure Controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

Our management, including the CEO and CFO, does not expect that our Disclosure Controls will prevent all error and all fraud.  A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.  Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected.  These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake.  The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Based upon their controls evaluation, our CEO and CFO have concluded that our Disclosure Controls are effective at a reasonable assurance level.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934.  Our internal control over financial reporting is a process designed to provide reasonable assurance that assets are safeguarded against loss from unauthorized use or disposition, transactions are executed in accordance with appropriate management authorization and accounting records are reliable for the preparation of financial statements in accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2007.  Management based this assessment on criteria for effective internal control over financial reporting described in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Management’s assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of its internal control over financial reporting.  Management reviewed the results of its assessment with the Audit Committee of our Board of Directors.

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Based on this assessment, management believes that SouthCrest Financial Group, Inc. maintained effective internal control over financial reporting as of December 31, 2007.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by the company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

Changes to Internal Control Over Financial Reporting

There have been no significant changes in our internal control over financial reporting during the fourth fiscal quarter ended December 31, 2007 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

ITEM 9B. OTHER INFORMATION

Not Applicable.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

The response to this Item is partially included in the Company’s Proxy Statement for the Annual Meeting of Shareholders to be held May 15, 2008 under the headings “Proposal One: Election of Directors,” “Executive Officers,” and “Section 16(a) Beneficial Ownership Reporting Compliance” and is incorporated herein by reference.

The Company has adopted a code of ethics that applies to its principal executive, financial and accounting officers.  A copy of the code of ethics may be obtained, without charge, upon written request addressed to SouthCrest Financial Group, Inc., 600 North Glynn Street, Suite B, Fayetteville, Georgia  30214, Attention:  Chief Financial Officer.  The request may be delivered by letter to the address set forth above or by fax to the attention of the Company’s Chief Financial Officer at (770) 461-2701.

ITEM 11. EXECUTIVE COMPENSATION

The response to this Item is included in the Company’s Proxy Statement for the Annual Meeting of Shareholders to be held May 15, 2008 under the headings “Proposal One: Election of Directors – Director Compensation” and “Executive Compensation” and is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The response to this Item is partially included in the Company’s Proxy Statement for the Annual Meeting of Shareholders to be held May 15, 2008 under the heading “Management Stock Ownership” and is incorporated herein by reference.

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The table below sets forth information regarding shares of the Company’s common stock authorized for issuance under the 2005 Stock Incentive Plan as of December 31, 2007.  The 2005 Stock Incentive Plan was approved by the Shareholders on May 12, 2005.

	Number of securities to be issued upon exercise of outstanding options		Weighted-average exercise price of outstanding options		Number of shares remaining available for future issuance under the Plan (excludes outstanding options)
Equity compensation plans approved by security holders		191,400	$	23.44		357,600
Equity compensation plans not approved by security holders		--		--		--
Total		191,400	$	23.44		357,600

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

The response to this Item is included in the Company’s Proxy Statement for the Annual Meeting of Shareholders to be held May 15, 2008 under the headings “Proposal One: Election of Directors – Director Independence” and “Related Party Transactions” and is incorporated herein by reference.

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

The response to this Item is included in the Company’s Proxy Statement for the Annual Meeting of Shareholders to be held May 15, 2008 under the heading “Audit Committee Matters” and is incorporated herein by reference.

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Number	Exhibit
3.1	Articles of Incorporation1
3.2	Amended and Restated Bylaws 1
3.3	Amendment to Bylaws 2
4.1	See Exhibits 3.1, and 3.2 for provisions of the Articles of Incorporation and Bylaws defining rights of holders of the Common Stock
10.1	Lease Contract, dated September 14, 1993, between Truitt A. Mallory and Bank of Upson 1
10.2	Agreement and Plan of Share Exchange with Bank of Chickamauga 3
10.3*	Employment Agreement with Daniel W. Brinks 4
10.4*	Salary Continuation Agreement with Daniel W. Brinks 5
10.5*	Joint Beneficiary Designation Agreement with Daniel W. Brinks 5
10.6*	Employment Agreement with Larry T. Kuglar 6
10.7*	Salary Continuation Agreement with Larry T. Kuglar 5
10.8*	Joint Beneficiary Designation Agreement with Larry T. Kuglar 5
10.9*	Employment Agreement with Douglas J. Hertha 6
10.10*	Salary Continuation Agreement with Douglas J. Hertha 5
10.11*	Joint Beneficiary Designation Agreement with Douglas J. Hertha 5
10.12*	Employment Agreement with Harvey N. Clapp 7
10.13*	Executive Salary Continuation Agreement with Harvey N. Clapp 7
10.14*	Employment Agreement with Trae Dorough
10.15*	Salary Continuation Agreement with Trae Dorough
10.16*	Joint Beneficiary Designation Agreement with Trae Dorough
10.17*	SouthCrest Financial Group, Inc. 2005 Stock Incentive Plan 8
10.18*	Form of Incentive Stock Option under the SouthCrest Financial Group, Inc. 2005 Stock Incentive Plan 5
10.19*	Form of Nonqualified Stock Option under the SouthCrest Financial Group, Inc. 2005 Stock Incentive Plan 5
13.1	Excerpts from the SouthCrest Financial Group, Inc. 2007 Annual Report to Shareholders – Management’s Discussion and Analysis

* Indicates a compensatory plan or contract.

1 Incorporated by reference to the Registration Statement on Form S-4 (Registration No. 333-112845), as filed with the SEC on February 13, 2004. 

2 Incorporated by reference to the Current Report on Form 8-K dated October 31, 2006. 

3 Incorporated by reference to the Current Report on Form 8-K dated February 23, 2007. 

4 Incorporated by reference to the Current Report on Form 8-K dated September 30, 2004. 

5 Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 2006. 

6 Incorporated by reference to the Current Report on Form 8-K dated February 15, 2005. 

7 Incorporated by reference to the Current Report on Form 8-K dated October 31, 2006. 

8 Incorporated by reference to the Annual Report on Form 10-KSB for the year ended December 31, 2004.

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Number	Exhibit
13.2	Excerpts from the SouthCrest Financial Group, Inc. 2007 Annual Report to Shareholders – Consolidated Financial Statements
21.1	Subsidiaries of the Registrant
23.1	Consent of Dixon Hughes PLLC
24.1	Power of Attorney (appears on the signature pages to the Annual Report on Form 10-K)
31.1	Certification of Principal Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act
31.2	Certification of Principal Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

SOUTHCREST FINANCIAL GROUP, INC.
By:	/s/ Larry T. Kuglar
	Larry T. Kuglar
	Chief Executive Officer
Date:	March 31, 2008

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears on the signature page to this Report constitutes and appoints Daniel W. Brinks and Larry T. Kuglar, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place, and stead, in any and all capacities, to sign any and all amendments to this Report, and to file the same, with all exhibits hereto, and other documents in connection herewith with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as they might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Daniel W. Brinks	Chairman and Chief Operating	March 31, 2008
Daniel W. Brinks	Officer
/s/ Larry T. Kuglar	Director, President and Chief	March 31, 2008
Larry T. Kuglar	Executive Officer (Principal Executive Officer)
/s/ Douglas J. Hertha	Senior Vice President and	March 31, 2008
Douglas J. Hertha	Chief Financial Officer (Principal Financial and Accounting Officer)

Signature	Title	Date
/s/ Richard T. Bridges	Director	March 31, 2008
Richard T. Bridges
/s/ Harvey N. Clapp	Director	March 31, 2008
Harvey N. Clapp
/s/ Joan B. Cravey	Director	March 31, 2008
Joan B. Cravey
/s/ Zack D. Cravey, Jr..	Director	March 31, 2008
Zack D. Cravey, Jr
/s/ Dr. Warren Patrick	Director	March 31, 2008
Dr. Warren Patrick
/s/ Michael D. McRae	Director	March 31, 2008
Michael D. McRae
/s/ Harold W. Wyatt, Jr.	Director	March 31, 2008
Harold W. Wyatt, Jr.

EXHIBIT INDEX

Number	Exhibit
3.1	Articles of Incorporation 1
3.2	Amended and Restated Bylaws 1
3.3	Amendment to Bylaws 2
4.1	See Exhibits 3.1, and 3.2 for provisions of the Articles of Incorporation and Bylaws defining rights of holders of the Common Stock
10.1	Lease Contract, dated September 14, 1993, between Truitt A. Mallory and Bank of Upson 1
10.2	Agreement and Plan of Share Exchange with Bank of Chickamauga 3
10.3*	Employment Agreement with Daniel W. Brinks 4
10.4*	Salary Continuation Agreement with Daniel W. Brinks 5
10.5*	Joint Beneficiary Designation Agreement with Daniel W. Brinks 5
10.6*	Employment Agreement with Larry T. Kuglar 6
10.7*	Salary Continuation Agreement with Larry T. Kuglar 5
10.8*	Joint Beneficiary Designation Agreement with Larry T. Kuglar 5
10.9*	Employment Agreement with Douglas J. Hertha 6
10.10*	Salary Continuation Agreement with Douglas J. Hertha 5
10.11*	Joint Beneficiary Designation Agreement with Douglas J. Hertha 5
10.12*	Employment Agreement with Harvey N. Clapp 7
10.13*	Executive Salary Continuation Agreement with Harvey N. Clapp 7
10.14*	Employment Agreement with Trae Dorough
10.15*	Salary Continuation Agreement with Trae Dorough
10.16*	Joint Beneficiary Designation Agreement with Trae Dorough
10.17*	SouthCrest Financial Group, Inc. 2005 Stock Incentive Plan 8
10.18*	Form of Incentive Stock Option under the SouthCrest Financial Group, Inc. 2005 Stock Incentive Plan 5
10.19*	Form of Nonqualified Stock Option under the SouthCrest Financial Group, Inc. 2005 Stock Incentive Plan 5
13.1	Excerpts from the SouthCrest Financial Group, Inc. 2007 Annual Report to Shareholders – Management’s Discussion and Analysis

* Indicates a compensatory plan or contract.

1 Incorporated by reference to the Registration Statement on Form S-4 (Registration No. 333-112845), as filed with the SEC on February 13, 2004. 

2 Incorporated by reference to the Current Report on Form 8-K dated October 31, 2006. 

3 Incorporated by reference to the Current Report on Form 8-K dated February 23, 2007. 

4 Incorporated by reference to the Current Report on Form 8-K dated September 30, 2004. 

5 Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 2006. 

6 Incorporated by reference to the Current Report on Form 8-K dated February 15, 2005. 

7 Incorporated by reference to the Current Report on Form 8-K dated October 31, 2006. 

8 Incorporated by reference to the Annual Report on Form 10-KSB for the year ended December 31, 2004.

13.2	Excerpts from the SouthCrest Financial Group, Inc. 2007 Annual Report to Shareholders – Consolidated Financial Statements
21.1	Subsidiaries of the Registrant
23.1	Consent of Dixon Hughes PLLC
24.1	Power of Attorney (appears on the signature pages to the Annual Report on Form 10-K)
31.1	Certification of Principal Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act
31.2	Certification of Principal Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

EX-10.14

Exhibit 10.14

EMPLOYMENT AGREEMENT

           THIS EMPLOYMENT AGREEMENT (“Agreement”), made and entered into as of January 3, 2008 (the “Effective Date”) by and between Trae Dorough, a resident of the State of Georgia (“Employee”), and SouthCrest Financial Group, Inc., a Georgia corporation (“Employer”).

W I T N E S S E T H:

           WHEREAS, Employer desires to employ Employee as its Senior Vice President and Chief Lending Officer and Employee desires to accept such employment;

           NOW, THEREFORE, in consideration of the employment of Employee by Employer, of the premises and the mutual promises and covenants contained herein, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows:

1.           Employment and Duties.

1.1           Position.  Employer hereby employs Employee to serve as its Senior Vice President and Chief Lending Officer and to perform such duties and responsibilities as are set forth in Exhibit A attached hereto and made part hereof by reference.  During the term of this Agreement (as defined in Section 2 herein), Employee will devote substantially all of his full time and effort to his duties hereunder.

1.2           Other Business Activities.  The parties agree that the Employee shall be free to engage in other non-competitive business activities and ventures during the term of this Agreement, so long as any such other business activities and ventures do not conflict or compete with the business of Employer or prevent the Employee from the faithful performance of his duties hereunder.

2.           Term.

           Subject to the provisions of Section 12 of this Agreement, the period of Employee’s employment under this Agreement shall be deemed to have commenced as of the Effective Date, and shall continue for a period of two (2) years, unless the Employee dies before the end of such two (2) years, in which case the period of employment shall end as of the date of death.  The Agreement shall automatically renew on each anniversary of the Effective Date such that upon each such anniversary, the term of the Agreement shall continue for two (2)years, unless any party shall deliver to the other party such party’s written notice of non-renewal no later than ninety (90) days prior to any such anniversary.

3.           Compensation.

           For all services to be rendered by Employee during the term of this Agreement,

3.1           Base Salary.  Employer shall pay Employee an annual base salary equal to $135,000 (the “Base Salary”), less normal withholdings, payable in equal monthly or more frequent installments as are customary under Employer’s payroll practices from time to time.  Employer’s Board of Directors shall review Employee’s Base Salary annually and may increase Employee’s Base Salary from year to year during the term of this Agreement.  Any Base Salary increase (regardless of form), will be determined by the Employer’s Board of Directors after taking into account, among other things, changes in the cost of living, Employee’s performance and the performance of Employer.  Employee shall be entitled to annual incentive compensation in such amount and subject to such criteria determined in consultation with Employee and as the Employer’s Board of Directors may determine from year to year.  Any action or review by the Board of Directors may be delegated to an appropriate committee thereof.

4.           Expenses.

           So long as Employee is employed hereunder, Employee is entitled to receive reimbursement for, or seek payment directly by Employer of, all reasonable expenses which are consistent with the normal policy of Employer in the performance of Employee’s duties hereunder, provided that Employee accounts for such expenses in writing in accordance with Employer’s reimbursement policies as may be adopted from time to time. The reimbursement of expenses described in this Section 4 must be incurred by the Employeeduring the term of this Agreement to be eligible for reimbursement.  All reimbursements shall be paid as soon as administratively practicable, but in no event shall any reimbursement be paid after the last day of the calendar year following the calendar year in which the expense was incurred, nor shall the amount of reimbursable expenses incurred in one taxable year affect the expenses eligible for reimbursement in any other taxable year.

5. Employee Benefits.

           So long as Employee is actively employed hereunder, Employee will be entitled to participate in the employee benefit, option, bonus and any other compensation programs as may be available from time to time to executives of the Employer similarly situated to Employee.

6. Vacation.

           Employee shall be entitled to three (3) weeks annual vacation.

7. Confidentiality.

           In Employee’s position as an employee of Employer, Employee has had and will have access to confidential information, trade secrets and other proprietary information of vital importance to Employer and has and will also develop relationships with customers, employees and others who deal with Employer which are of value to Employer.  Employer requires as a condition to Employee’s employment with Employer that Employee agree to certain restrictions on Employee’s use of the proprietary information and valuable relationships developed during Employee’s employment with Employer.  In consideration of the terms and conditions contained herein, the parties hereby agree as follows:

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7.1           The parties mutually agree and acknowledge that Employer may entrust Employee with highly sensitive, confidential, restricted and proprietary information concerning various Business Opportunities (as hereinafter defined), customer lists, and personnel matters.  Employee acknowledges that he shall bear a fiduciary responsibility to Employer to protect such information from use or disclosure that is not necessary for the performance of Employee’s duties hereunder, as an essential incident of Employee’s employment with Employer.

7.2           For the purposes of this Section, the following definitions shall apply:

7.2.1        “Trade Secret” shall mean the identity and addresses of customers of Employer, the whole or any portion or phase of any scientific or technical information, design, process, procedure, formula or improvement that is valuable and secret (in the sense that it is not generally known to competitors of Employer) and which is defined as a “trade secret” under Georgia law pursuant to the Georgia Trade Secrets Act.

7.2.2        “Confidential Information” shall mean any data or information, other than Trade Secrets, which is material to Employer and not generally known by the public.  Confidential Information shall include, but not be limited to, Business Opportunities of Employer (as hereinafter defined), the details of this Agreement, Employer’s business plans and financial statements and projections, information as to the capabilities of Employer’s employees, their respective salaries and benefits and any other terms of their employment, and the costs of the services Employer may offer or provide to the customers it serves, to the extent such information is material to Employer and not generally known by the public.

7.2.3        “Business Opportunities” shall mean any specialized information or plans of Employer concerning the provision of financial services to the public, together with all related information concerning the specifics of any contemplated financial services regardless of whether Employer has contacted or communicated with such target person or business.

7.2.4        Notwithstanding the definitions of Trade Secrets, Confidential Information, and Business Opportunities set forth above, Trade Secrets, Confidential Information, and Business Opportunities shall not include any information:

(i)       that is or becomes generally known to the public;

(ii)      that is already known by Employee or is developed by Employee after termination of employment through entirely independent efforts;

(iii)     that Employee obtains from an independent source having a bona fide right to use and disclose such information;

(iv)     that is required to be disclosed by law, except to the extent eligible for special treatment under an appropriate protective order; or

(v)      that Employer’s Board of Directors approves for release.

7.3           Employee shall not, without the prior approval of Employer’s Board of Directors, during his employment with Employer and for so long thereafter as the information or data remain Trade Secrets, use or disclose, or negligently permit any unauthorized person who is not an employee of Employer to use, disclose, or gain access to, any Trade Secrets of Employer, its affiliates, or of any other person or entity making Trade Secrets available for Employer’s use.

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7.4           Employee shall not, without the prior written consent of Employer, during his employment with Employer and for a period of twenty-four (24) months thereafter as long as the information or data remains competitively sensitive, use or disclose, or negligently permit any unauthorized person who is not employed by Employer to use, disclose, or gain access to, any Confidential Information to which the Employee obtained access by virtue of his employment with Employer, except as provided in Section 7.2 of this Agreement.

8. Observance of Security Measures.

           During Employee’s employment with Employer, Employee is required to observe all security measures adopted to protect Trade Secrets, Confidential Information, and Business Opportunities of Employer.

9. Return of Materials.

           Upon the request of Employer and, in any event, upon the termination of his employment with Employer, Employee shall deliver to Employer all memoranda, notes, records, manuals or other documents, including all copies of such materials containing Trade Secrets or Confidential Information, whether made or compiled by Employee or furnished to him from any source by virtue of his employment with Employer.

10. Severability.

           Employee acknowledges and agrees that the covenants contained in Sections 7, 8, 9 and 14 of this Agreement shall be construed as covenants independent of one another and distinct from the remaining terms and conditions of this Agreement, and severable from every other contract and course of business between Employer and Employee, and that the existence of any claim, suit or action by Employee against Employer, whether predicated upon this or any other agreement, shall not constitute a defense to Employer’s enforcement of any covenant contained in Sections 7, 8, 9 and 14 of this Agreement.

11. Specific Performance.

           Employee acknowledges and agrees that the covenants contained in Sections 7, 8, 9 and 14 of this Agreement shall survive any termination of employment, as applicable, with or without Cause (as defined in Section 12 hereof), at the instigation or upon the initiative of either party.  Employee further acknowledges and agrees that the ascertainment of damages in the event of Employee’s breach of any covenant contained in Sections 7, 8, 9 and 14 of this Agreement would be difficult, if at all possible.  Employee therefore acknowledges and agrees that Employer shall be entitled in addition to and not in limitation of any other rights, remedies, or damages available to Employer in arbitration, at law or in equity, upon submitting whatever affidavit the law may require, and posting any necessary bond, to have a court of competent jurisdiction enjoin Employee from committing any such breach.

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12. Termination.

           During the term of this Agreement, Employee’s employment, including without limitation, except as otherwise provided in Section 12 of this Agreement, all compensation, salary, expenses reimbursement, and employee benefits may be terminated as follows:

12.1           At the election of Employer for Cause;

12.2           At Employee’s election upon Employer’s breach of any material provision of this Agreement;

12.3           “Cause” shall mean (i) material dishonesty, gross negligence or willful misconduct by Employee in the performance of his duties hereunder which conduct results in material financial or reputational harm to Employer or its affiliates; (ii) conviction (from which no appeal may be, or is, timely taken) of Employee of a felony; (iii) initiation of suspension or removal proceedings against Employee by federal or state regulatory authorities acting under lawful authority pursuant to provisions of federal or state law or regulation which may be in effect from time to time; (iv) knowing violation by Employee of federal or state banking laws or regulations; or (v) refusal by Employee to perform a duly authorized and lawful written directive of Employer’s President and Chief Executive Officer and/or Board of Directors.

12.4           Upon Employee’s death, or, at the election of either party, upon Employee’s disability as determined in accordance with the standards and procedures under Employer’s then-current long-term disability insurance coverage provided by Employer, or, if such disability insurance coverage provided by Employer is not then in place, upon Employee’s disability resulting in his inability to perform the duties described in Section 1.1 of this Agreement for a period of one hundred eighty (180) consecutive days.

12.5           If this Agreement is terminated either (i) by Employer at any time for any reason other than for Cause or (ii) upon Employer’s breach of this Agreement and such termination constitutes a separation from service under Treas. Reg. Section 1.409A-1(h) (or any successor provision), then Employer shall pay to Employee as Employer’s sole remaining obligation to Employee under this Agreement the sum of the following:  (a) Employee’s Base Salary for the remaining months of the term of this Agreement at the Base Salary rate then in effect; (b) reimbursement for the cost of COBRA health continuation coverage for Employee for the lesser of (1) the remaining months of the term of this Agreement, or (2) the period during which Employee is entitled to COBRA health continuation coverage from the Employer; and (c) the cost for term life insurance coverage for Employee for the remaining months of the term of this Agreement in an amount not to exceed the monthly cost of premiums for such coverage in effect on the effective date of termination.  The amounts described in Clauses (a) and (c) above shall be paid in substantially equal monthly installments over the remaining months of the term of this Agreement commencing with the month following the month in which the termination is effective.

12.6           If the Agreement is terminated either for Cause or pursuant to Section 12.4 of this Agreement, Employee shall receive no further compensation or benefits, other than Employee’s Base Salary and other compensation as accrued through the effective date of such termination.

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12.7           Notwithstanding any provision in the Agreement to the contrary, if the Employee is a “specified employee” within the meaning of Code Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) at the date of his termination of employment, then such portion of the payments provided for in this Section 12 (or Section 15) that would result in a tax under Code Section 409A if paid during the first six (6) months after termination of employment shall be withheld, starting with the payments latest in time during such six (6) month period, and paid to the Employee during the seventh month following the date of his termination of employment.

13. Notice.

           All notice provided for herein shall be in writing and shall be deemed to be given when delivered in person or deposited in the United States Mail, registered or certified, return receipt requested, with proper postage prepaid and addressed as follows:

Employer:	SouthCrest Financial Group, Inc. 600 North Glynn Street Suite B Fayetteville, Georgia  30214 Attn:  Larry T. Kuglar
Employee:	Trae Dorough
with a copy to:	Powell Goldstein LLP One Atlantic Center Fourteenth Floor 1201 West Peachtree Street NW Atlanta, Georgia  30309-3488 Attn:  Walter G. Moeling, IV, Esquire

14. Covenant Not to Compete and Not to Solicit.

                    14.1         For purposes of this Section 14, Employer and Employee conduct the following business in the following geographic areas:

                                14.1.1                 Employer is engaged in the business of commercial banking (“Business of Employer”).

                                14.1.2                 As of the Effective Date, Employer conducts the Business of Employer from its main office located at 600 North Glynn Street, Suite B, Fayetteville, Georgia  30214 (the “Holding Company Office”).

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                                14.1.3                 Employee has established business relationships and performs the duties described in Section 1.1 of this Agreement in the geographic area covered by Fayette, Meriwether, Polk, Upson and Walker Counties, Georgia and Chilton County, Alabama (the “Restricted Area”), and will work primarily in the Restricted Area while in the employ of Employer.

                    14.2         Employee covenants and agrees that both during the term of this Agreement and for a period of one (1) year after the termination of his employment with Employer for any reason other than a resignation pursuant to Section 15.3 of this Agreement, Employee shall not, directly or indirectly, as principal, agent, trustee, consultant or through the agency of any corporation, partnership, association, trust or other entity or person, on Employee’s own behalf or for others, provide the duties described in Section 1.1 of this Agreement within the Restricted Area for any entity or person conducting the Business of Employer.

                    14.3         Employee covenants and agrees that both during the term of this Agreement and for a period of one (1) year after the termination of his employment with Employer for any reason, Employee will not enter into, and will not participate in, any plan or arrangement to cause any employee of the Employer to terminate his or her employment with Employer, and, Employee further agrees that for a period of at least one (1) year after the termination of employment by any employee of Employer, Employee will not hire such employee in connection with any business initiated by Employee or any other person, firm or corporation.  Employee further agrees that information as to the capabilities of Employer’s employees, their salaries and benefits, and any other terms of their employment is Confidential Information and proprietary to the Employer.

                        14.4        Employee covenants and agrees that both during the term of this Agreement and for a period of one (1) year after the termination of his employment with Employer for any reason, he will not (except on behalf of or with the prior written consent of the Employer), within the Restricted Area, on his own behalf or in the service of or on behalf of others, solicit, divert or appropriate or attempt to solicit, divert or appropriate, any business from any of the Employer’s customers, including prospective customers actively sought by the Employer, with whom the Employee has or had material contact during the last two (2) years of his employment, for purposes of providing products or services that are competitive with those provided by the Employer.

14.5         Employee and Employer shall periodically amend this Agreement by updating the Restricted Area referenced in Section 14.1.3 of this Agreement so that it at all times lists the then current geographic area served by Employer for which Employee performs the duties described in Section 1.1 of this Agreement.

                    14.6         The covenants contained in this Section 14 shall be construed as agreements severable from and independent of each other and of any other provision of this or any other contract or agreement between the parties hereto.  The existence of any claim or cause of action by Employee against Employer, whether predicated upon this or any other contract or agreement, shall not constitute a defense to the enforcement by Employer of said covenants.

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            15.           Change in Control.

                        None of the benefits provided in Section 15 of this Agreement shall be payable to Employee unless (i) there shall have been a Change in Control of Employer, as set forth in this Section 15, and (ii) Employee is employed by Employer when the Change in Control occurs.

                    15.1         “Change in Control” shall be deemed to have occurred upon the first to occur of the following events:

15.1.1  The acquisition by any one person, or more than one person acting as a group (other than any person or more than one person acting as a group who is considered to own more than fifty percent (50%) of the total fair market of the stock of the Employer prior to such acquisition), of stock of the Employer that, together with stock held by such person or group, constitutes more than fifty percent (50%) of the total fair market value or total voting power of the stock of the Employer;

                        15.1.2  Within any twelve-month period (beginning on or after the Effective Date) the date a majority of members of the Employer’s Board of Directors is replaced by directors whose appointment or election is not endorsed by a majority of the members of the Employer’s Board of Directors before the date of the appointment or election;

15.1.3  Within any twelve-month period (beginning on or after the Effective Date) the acquisition by any one person, or more than one person acting as a group, of ownership of stock of the Employer possessing thirty percent (30%) or more of the total voting power of the stock of the Employer;

15.1.4  Within any twelve-month period (beginning on or after the Effective Date) the acquisition by any one person, or more than one person acting as a group, of the assets of the Employer that have a total gross fair market value of eighty-five percent (85%) or more of the total gross fair market value of all of the assets of the Employer immediately before such acquisition or acquisitions; provided, however, that transfers to the following entities or person(s) shall not be deemed to result in a Change in Control under this Section 15.1.4:  (i) an entity that is controlled by the shareholders of the Employer immediately after the transfer; (ii) a shareholder (determined immediately before the asset transfer) of the Employer in exchange for or with respect to its stock; (iii) an entity, fifty percent (50%) or more of the total value or voting power of which is owned, directly or indirectly, by the Employer; (iv) a person, or more than one person acting as a group, that owns, directly or indirectly, fifty percent (50%) or more of the total value or voting power of all the outstanding stock of the Employer; or (v) an entity, at least fifty percent (50%) of the total value or voting power of which is owned, directly or indirectly, by a person described in the above Section 15.1.4(iv).

For purposes of this Section 15.1, persons will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of stock, or similar business transaction with the Employer.  Notwithstanding the foregoing, no Change in Control shall be deemed to have occurred for purposes of this Agreement by reason of any actions or events in which the Employee participates in a capacity other than in the Employee’s capacity as an employee.15.2In the event of a Change in Control of Employer, if Employer terminates Employee without Cause, or if Employer takes any action specified in Section 15.3 of this Agreement, in either case, within twenty-four (24) months following the date of occurrence of a Change in Control of Employer (“Termination of Employment”), Employer shall pay Employee a lump sum cash payment in an amount equal to the product of one (1) multiplied by Employee’s annual compensation from Employer, including salary, bonuses, all perquisites, and all other forms of compensation paid to Employee for his benefit or the benefit of his family, however characterized, for the fiscal year during the term of this Agreement for which such compensation was highest.  The payment provided for in this Section 15.2 shall be due and payable to Employee within thirty (30) days after the date of the Termination of Employment.  In no event shall payment(s) described in this Section exceed the amount permitted by Section 280G of the Code.  Therefore, if the aggregate present value (determined as of the date of the Change in Control in accordance with the provisions of Section 280G of the Code) of both the severance payment and all other payments to the Employee in the nature of compensation which are contingent on a change in ownership or effective control of Employer or in the ownership of a substantial portion of the assets of Employer (the “Aggregate Severance”) would result in a “parachute payment,” as defined under Section 280G of the Code, then the Aggregate Severance shall not be greater than an amount equal to 2.99 multiplied by Employee’s “base amount” for the “base period,” as those terms are defined under Section 280G of the Code.  In the event the Aggregate Severance is required to be reduced pursuant to this Section 15.2, the last payments in time shall be reduced first.

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15.3         During the remaining term of this Agreement following the effective date of a Change in Control, if Employer takes any of the following actions, such action shall be deemed to be a termination by Employer without Cause.  Those actions are: (i) a material reduction in Employee’s Base Salary, bonus provisions or other perquisites as were in effect immediately prior to a Change in Control of Employer, (ii) a material change in Employee’s status, offices, titles or reporting requirements, duties or responsibilities with Employer as in effect immediately prior to the effective date of the Change in Control, (iii) a failure by Employer to increase Employee’s Base Salary annually in accordance with an established procedure, or (iv) due to Employer’s requirement that Employee relocate his principal place of business by more than twenty-five (25) miles from the Holding Company Office.  In any such event, Employee shall be entitled to all payments provided for in Section 15.2 of this Agreement.

            16.           Miscellaneous.

                    16.1         This Agreement constitutes and expresses the whole agreement of the parties in reference to the employment of Employee by Employer, and there are no representations, inducements, promises, agreements, arrangements, or undertakings oral or written, between the parties other than those set forth herein.

                    16.2         This Agreement shall be governed by the laws of the State of Georgia.  The parties agree that the Superior Court of Upson County, Georgia, shall have jurisdiction of any case or controversy arising under or in connection with this Agreement and shall be a proper forum in which to adjudicate such case or controversy.  The parties consent to the jurisdiction of such court.

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                        16.3         Should any clause or any other provision of this Agreement be determined to be void or unenforceable for any reason, such determination shall not affect the validity or enforceability of any clause or provision of this Agreement, all of which shall remain in full force and effect.

                    16.4         Time is of the essence in this Agreement.

                    16.5         This Agreement shall be binding upon and inure to the benefit of the parties hereto and their successors and assigns.  This Agreement shall not be assignable by any other parties hereto without the prior written consent of the other parties.

                    16.6         This Agreement may be executed in multiple counterparts, each of which shall be deemed an original and all of which taken together shall constitute but a single instrument.

           IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first written above.

	“Employee”
		(SEAL)
Witness	Trae Dorough
	“Employer”

ATTEST	SouthCrest Financial Group, Inc.
	By:
	Its:	,
(CORPORATE SEAL)

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EX-10.15

Exhibit 10.15

OFFICER SALARY CONTINUATION AGREEMENT

THIS AGREEMENT, made and entered into this 20th day of June, 2007, by and between Bank of Upson, a bank organized and existing under the laws of the State of Georgia (hereinafter referred to as the “Bank”), and Trae D. Dorough, an Officer of the Bank (hereinafter referred to as the “Officer”), a member of a select group of management employees of the Bank.

WHEREAS, the Officer has been and continues to be a valued Officer of the Bank;

WHEREAS, the purpose of this Agreement is to further the growth and development of the Bank by providing the Officer with supplemental retirement income, and thereby encourage the Officer’s productive efforts on behalf of the Bank and the Bank’s shareholders, and to align the interests of the Officer and those shareholders.

WHEREAS, it is the desire of the Bank and the Officer to enter into this Agreement under which the Bank will agree to make certain payments to the Officer at retirement or the Officer’s Beneficiary in the event of the Officer’s death pursuant to this Agreement;

ACCORDINGLY, it is intended that the Agreement be “unfunded” for purposes of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and not be construed to provide income to the participant or beneficiary under the Internal Revenue Code of 1986, as amended (the “Code”), particularly Section 409A of the Code and guidance or regulations issued thereunder, prior to actual receipt of benefits; and

THEREFORE, it is agreed as follows:

I. EFFECTIVE DATE

The Effective Date of this Agreement shall be March 29, 2006.

II. FRINGE BENEFITS

The salary continuation benefits provided by this Agreement are granted by the Bank as a fringe benefit to the Officer and are not part of any salary reduction plan or an arrangement deferring a bonus or a salary increase.  The Officer has no option to take any current payment or bonus in lieu of these salary continuation benefits except as set forth hereinafter.

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III. DEFINITIONS

A. Retirement Date:

If the Officer remains in the continuous employ of the Bank, the Officer shall retire from active employment with the Bank on the later of the Officer’s sixty-fifth (65th) birthday or Separation from Service.

B. Normal Retirement Age:

“Normal Retirement Age” shall mean the date on which the Officer attains age sixty-five (65).

C. Plan Year:

Any reference to “Plan Year” shall mean a calendar year from January 1st to December 31st.  In the year of implementation, the term “Plan Year” shall mean the period from the effective date to December 31st of the year of the effective date.

D. Termination of Employment:

“Termination of Employment” shall mean voluntary resignation of employment by the Officer or the Bank’s discharge of the Officer without cause, prior to the Normal Retirement Age.

E. Separation from Service:

“Separation from Service” shall mean that the Officer has experienced a Termination of Employment from the Bank.  Where the Officer continues to perform services for the Bank following a Termination of Employment, however, and the facts and circumstances indicate that such services are intended by the Bank and the Officer to be more than “insignificant” services, a Separation from Service will not be deemed to have occurred and any amounts deferred under this Agreement may not be paid or made available to the Officer.  The determination of whether such services are considered “insignificant” will be based upon all facts and circumstances relating to the termination and upon any applicable rules and regulations issued under Section 409A of the Code.  Military leave, sick leave, or other bona fide leaves of absence are not generally considered terminations of employment.

F. Discharge for Cause:

The term “for cause” shall mean any of the following that result in an adverse effect on the Bank: (i) the commission of a felony or gross misdemeanor involving fraud or dishonesty; (ii) the willful violation of any banking law, rule,

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or banking regulation (other than a traffic violation or similar offense); (iii) an intentional failure to perform stated duties; or (iv) a breach of fiduciary duty involving personal profit.  If a dispute arises as to discharge “for cause,” such dispute shall be resolved by arbitration as set forth in this Agreement.  In the alternative, if the Officer is permitted to resign due to inappropriate conduct as defined above, the Board of Directors may vote to deny all benefits.  A majority decision by the Board of Directors is required for forfeiture of the Officer’s benefits.

G. Change of Control:

“Change of Control” shall mean a change in ownership or control of the Bank as defined in Treasury Regulation Section 1.409A-3(g)(5) or any subsequently applicable Treasury Regulation.

H. Restriction on Timing of Distribution:

Notwithstanding any provision of this Agreement to the contrary, distributions to the Officer may not commence earlier than six (6) months after the date of a Separation from Service, as that term is used under Section 409A if, pursuant to Internal Revenue Code Section 409A, the Officer is considered a “specified employee” under Internal Revenue Code Section 416(i), of the Bank if any stock of the Bank is publicly traded on an established securities market or otherwise.  In the event a distribution is delayed pursuant to this paragraph, the originally scheduled payment shall be delayed for six (6) months, and shall commence instead on the first day of the seventh month following Separation from Service.  If payments are scheduled to be made in installments, the first six (6) months of installment payments shall be delayed, aggregated, and paid instead on the first day of the seventh month, after which all installment payments shall be made on their regular schedule.  If payment is scheduled to be made in a lump sum, the lump payment shall be delayed for six (6) months and instead be made on the first day of the seventh month.

I. Beneficiary:

The Officer shall have the right to name a Beneficiary of the death benefit as described in Paragraph IV herein.  The Officer shall have the right to name such Beneficiary at any time prior to the Officer’s death and submit it to the Plan Administrator (or Plan Administrator’s representative) on the form provided.  Once received and acknowledged by the Plan Administrator, the form shall be effective.  The Officer may change a Beneficiary designation at any time by submitting a new form to the Plan Administrator.  Any such change shall follow the same rules as for the original Beneficiary designation and shall automatically supersede the existing Beneficiary form on file with the Plan Administrator.

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If the Officer dies without a valid Beneficiary designation on file with the Plan Administrator, death benefits shall be paid to the Officer’s estate.

If the Plan Administrator determines in its discretion that a benefit is to be paid to a minor, to a person declared incompetent, or to a person incapable of handling the disposition of that person’s property, the Plan Administrator may direct distribution of such benefit to the guardian, legal representative or person having the care or custody of such minor, incompetent person or incapable person.  The Plan Administrator may require proof of incompetence, minority or guardianship as it may deem appropriate prior to distribution of the benefit.  Any distribution of a benefit shall be a distribution for the account of the Officer and the Beneficiary, as the case may be, and shall be a complete discharge of any liability under the Agreement for such distribution amount.

IV. RETIREMENT BENEFIT

Upon attainment of the Retirement Date, the Bank shall pay the Officer an annual benefit equal to Twenty-Five Thousand and 00.100th Dollars ($25,000.00).  Said benefit shall be paid in equal monthly installments (1/12th of the annual benefit) until the death of the Officer.  Said payment shall be made the first day of the month following the date of such Separation from Service.

V. DEATH BENEFIT

A. Pre-Retirement Death Benefit:

In the event the Officer should die while actively employed by the Bank at any time after the date of this Agreement but prior to the Officer attaining the Retirement Date, the Bank will pay the accrued balance on the date of death, of the Officer’s accrued liability retirement account in one (1) lump sum, the first day of the second month following the Officer’s death, to the Beneficiary.

B. Post-Retirement Death Benefit:

Upon the death of the Officer, if there is a balance in the accrued liability retirement account, such balance shall be paid in one (1) lump sum to the Beneficiary.  Said payment due hereunder shall be made the first day of the second month following the Officer’s death.

VI. ACCRUED LIABILITY RETIREMENT ACCOUNT

The Bank shall account for this benefit using the regulatory accounting principles of the Bank’s primary federal regulator.  The Bank shall establish an accrued liability retirement account for the Officer into which appropriate reserves shall be accrued.

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VII. VESTING

The Officer shall be vested in the accrued liability retirement account in accordance with the following schedule to a maximum of one hundred percent (100%).

Age of Officer	Vested (to a maximum of 100%)
Age 59 and under	0%
60	50%
61	60%
62	70%
63	80%
64	90%
65	100%

VIII. TERMINATION OF EMPLOYMENT

In the event that the employment of the Officer shall terminate prior to Normal Retirement Age, by the Officer’s voluntary action, or by the Officer’s discharge by the Bank without cause, then this Agreement shall terminate upon the date of such termination of employment and the Bank shall pay to the Officer an amount of money equal to balance of the Officer’s accrued liability retirement account on the date of said termination, multiplied by the Officer’s cumulative vested percentage.  This compensation shall be paid in one (1) lump sum the first day of the second month following Separation from Service.

In the event the Officer’s death should occur after such termination but prior to the payment provided for in this paragraph, the balance shall be paid, in one (1) lump sum to the Beneficiary.  Said payment due hereunder shall be made the first day of the second month following the decease of the Officer.

In the event the Officer shall be discharged for cause at any time, this Agreement shall terminate and all benefits provided herein shall be forfeited.

IX. CHANGE OF CONTROL

If the Officer subsequently suffers a Termination of Employment (voluntarily or involuntarily), except for cause, anytime subsequent to a Change of Control, then the Officer shall receive the benefits stated in Paragraph IV herein upon attaining Normal Retirement Age, as if the Officer had been continuously employed by the Bank until the Officer’s Normal Retirement Age.

X. RESTRICTIONS ON FUNDING

The Bank shall have no obligation to set aside, earmark or entrust any fund or money with which to pay its obligations under this Agreement.  The Officer, their beneficiary(ies), or any successor in interest shall be and remain simply a general creditor

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of the Bank in the same manner as any other creditor having a general claim for matured and unpaid compensation.

The Bank reserves the absolute right, at its sole discretion, to either fund the obligations undertaken by this Agreement or to refrain from funding the same and to determine the extent, nature and method of such funding.  Should the Bank elect to fund this Agreement, in whole or in part, through the purchase of life insurance, mutual funds, disability policies or annuities, the Bank reserves the absolute right, in its sole discretion, to terminate such funding at any time, in whole or in part.  At no time shall any Officer be deemed to have any lien, right, title or interest in any specific funding investment or assets of the Bank.

If the Bank elects to invest in a life insurance, disability or annuity policy on the life of the Officer, then the Officer shall assist the Bank by freely submitting to a physical exam and supplying such additional information necessary to obtain such insurance or annuities.

XI. MISCELLANEOUS

A. Alienability and Assignment Prohibition:

Neither the Officer, nor the Officer’s surviving spouse, nor any other Beneficiary under this Agreement shall have any power or right to transfer, assign, anticipate, hypothecate, mortgage, commute, modify or otherwise encumber in advance any of the benefits payable hereunder nor shall any of said benefits be subject to seizure for the payment of any debts, judgments, alimony or separate maintenance owed by the Officer or the Officer’s Beneficiary, nor be transferable by operation of law in the event of bankruptcy, insolvency or otherwise.  In the event the Officer or any Beneficiary attempts assignment, commutation, hypothecation, transfer or disposal of the benefits hereunder, the Bank’s liabilities shall forthwith cease and terminate.

B. Binding Obligation of the Bank and any Successor in Interest:

The Bank shall not merge or consolidate into or with another bank or sell substantially all of its assets to another bank, firm or person until such bank, firm or person expressly agree, in writing, to assume and discharge the duties and obligations of the Bank under this Agreement.  This Agreement shall be binding upon the parties hereto, their successors, beneficiaries, heirs and personal representatives.

C. Amendment or Revocation:

Subject to Paragraph XIII, it is agreed by and between the parties hereto that, during the lifetime of the Officer, this Agreement may be amended or revoked at any time or times, in whole or in part, by the mutual written consent of the Officer and the Bank.  Any such amendment shall not be effective to decrease or restrict

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any Officer’s accrued benefit under this Agreement, determined as of the date of amendment, unless agreed to in writing by the Officer, and provided further, no amendment shall be made, or if made, shall be effective, if such amendment would cause the Agreement to violate Internal Revenue Code Section 409A.  In the event this Agreement is terminated, such termination shall not cause a distribution of benefits, except under limited circumstances as permitted under Section 409A (i.e., 30 days before or 12 months after a Change of Control event, upon termination of all arrangements of the same type, or upon corporate dissolution or bankruptcy).

D. Gender:

Whenever in this Agreement words are used in the masculine or neutral gender, they shall be read and construed as in the masculine, feminine or neutral gender, whenever they should so apply.

E. Headings:

Headings and subheadings in this Agreement are inserted for reference and convenience only and shall not be deemed a part of this Agreement.

F. Applicable Law:

The laws of the State of Georgia shall govern the validity and interpretation of this Agreement.

G. Partial Invalidity:

If any term, provision, covenant, or condition of this Agreement is determined by an arbitrator or a court, as the case may be, to be invalid, void, or unenforceable, such determination shall not render any other term, provision, covenant, or condition invalid, void, or unenforceable, and the Agreement shall remain in full force and effect notwithstanding such partial invalidity.

H. Not a Contract of Employment:

This Agreement shall not be deemed to constitute a contract of employment between the parties hereto, nor shall any provision hereof restrict the right of the Bank to discharge the Officer, or restrict the right of the Officer to terminate employment.

I. Tax Withholding:

The Bank shall withhold any taxes that are required to be withheld, under Section 409A of the Code and regulations thereunder, from the benefits provided under this Agreement.  The Officer acknowledges that the Bank’s sole liability

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regarding taxes is to forward any amounts withheld to the appropriate taxing authority(ies).

J. Opportunity to Consult with Independent Advisors:

The Officer acknowledges that he has been afforded the opportunity to consult with independent advisors of his choosing including, without limitation, accountants or tax advisors and counsel regarding both the benefits granted to him under the terms of this Agreement and the: (i) terms and conditions which may affect the Officer’s right to these benefits; and (ii) personal tax effects of such benefits including, without limitation, the effects of any federal or state taxes, Section 280G of the Code, Section 409A of the Code and guidance or regulations thereunder, and any other taxes, costs, expenses or liabilities whatsoever related to such benefits, which in any of the foregoing instances the Officer acknowledges and agrees shall be the sole responsibility of the Officer notwithstanding any other term or provision of this Agreement.  The Officer further acknowledges and agrees that the Bank shall have no liability whatsoever related to any such personal tax effects or other personal costs, expenses, or liabilities applicable to the Officer and further specifically waives any right for himself or herself, and his or her heirs, beneficiaries, legal representative, agents, successor and assign to claim or assert liability on the part of the Bank related to the matters described above in this paragraph.  The Officer further acknowledges that he has read, understands and consents to all of the terms and conditions of this Agreement, and that he enters into this Agreement with a full understanding of its terms and conditions.

K. Permissible Acceleration Provision:

Under Section 409A(a)(3), a payment of deferred compensation may not be accelerated except as provided in regulations by the Internal Revenue Code.  Certain permissible payment accelerations include payments necessary to comply with a domestic relations order, payments necessary to comply with certain conflict of interest rules, payments intended to pay employment taxes, and certain de minimis payments related to the participant’s termination of the Officer’s interest in the plan.

XII. ADMINISTRATIVE AND CLAIMS PROVISION

A. Plan Administrator:

The “Plan Administrator” of this Agreement shall be Bank of Upson.  As Plan Administrator, the Bank shall be responsible for the management, control and administration of the Agreement.  The Plan Administrator may delegate to others certain aspects of the management and operation responsibilities of the Agreement including the employment of advisors and the delegation of ministerial duties to qualified individuals.

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B. Claims Procedure:

a. Filing a Claim for Benefits:

Any insured, Beneficiary, or other individual, (“Claimant”) entitled to benefits under this Agreement will file a claim request with the Plan Administrator.  The Plan Administrator will, upon written request of a Claimant, make available copies of all forms and instructions necessary to file a claim for benefits or advise the Claimant where such forms and instructions may be obtained.  If the claim relates to disability benefits, then the Plan Administrator shall designate a sub-committee to conduct the initial review of the claim (and applicable references below to the Plan Administrator shall mean such sub-committee).

b. Denial of Claim:

A claim for benefits under this Agreement will be denied if the Bank determines that the Claimant is not entitled to receive benefits under the Agreement. Notice of a denial shall be furnished the Claimant within a reasonable period of time after receipt of the claim for benefits by the Plan Administrator.  This time period shall not exceed more than ninety (90) days after the receipt of the properly submitted claim.  In the event that the claim for benefits pertains to disability, the Plan Administrator shall provide written notice within forty-five (45) days.  However, if the Plan Administrator determines, in its discretion, that an extension of time for processing the claim is required, such extension shall not exceed an additional ninety (90) days.  In the case of a claim for disability benefits, the forty-five (45) day review period may be extended for up to thirty (30) days if necessary due to circumstances beyond the Plan Administrator’s control, and for an additional thirty (30) days, if necessary.  Any extension notice shall indicate the special circumstances requiring an extension of time and the date by which the Plan Administrator expects to render the determination on review.

c. Content of Notice:

The Plan Administrator shall provide written notice to every Claimant who is denied a claim for benefits which notice shall set forth the following:

(i.) The specific reason or reasons for the denial;

(ii.) Specific reference to pertinent Agreement provisions on which the denial is based;

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(iii.) A description of any additional material or information necessary for the Claimant to perfect the claim, and any explanation of why such material or information is necessary; and

(iv.) Any other information required by applicable regulations, including with respect to disability benefits.

d. Review Procedure:

The purpose of the Review Procedure is to provide a method by which a Claimant may have a reasonable opportunity to appeal a denial of a claim to the Plan Administrator for a full and fair review.  The Claimant, or his duly authorized representative, may:

(i.) Request a review upon written application to the Plan Administrator. Application for review must be made within sixty (60) days of receipt of written notice of denial of claim.  If the denial of claim pertains to disability, application for review must be made within one hundred eighty (180) days of receipt of written notice of the denial of claim;

(ii.) Review and copy (free of charge) pertinent Agreement documents, records and other information relevant to the Claimant’s claim for benefits;

(iii.) Submit issues and concerns in writing, as well as documents, records, and other information relating to the claim.

e. Decision on Review:

A decision on review of a denied claim shall be made in the following manner:

(i.) The Plan Administrator may, in its sole discretion, hold a hearing on the denied claim. If the Claimant’s initial claim is for disability benefits, any review of a denied claim shall be made by members of the Plan Administrator other than the original decision maker(s) and such person(s) shall not be a subordinate of the original decision maker(s).  The decision on review shall be made promptly, but generally not later than sixty (60) days after receipt of the application for review.  In the event that the denied claim pertains to disability, such decision shall not be made later than forty-five (45) days after receipt of the application for review.  If the Plan Administrator determines that an extension of time for processing is required, written notice of the extension shall be furnished to the Claimant prior to the termination of the initial

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sixty (60) day period.  In no event shall the extension exceed a period of sixty (60) days from the end of the initial period.  In the event the denied claim pertains to disability, written notice of such extension shall be furnished to the Claimant prior to the termination of the initial forty-five (45) day period.  In no event shall the extension exceed a period of thirty (30) days from the end of the initial period.  The extension notice shall indicate the special circumstances requiring an extension of time and the date by which the Plan Administrator expects to render the determination on review.

(ii.) The decision on review shall be in writing and shall include specific reasons for the decision written in an understandable manner with specific references to the pertinent Agreement provisions upon which the decision is based.

(iii.) The review will take into account all comments, documents, records and other information submitted by the Claimant relating to the claim without regard to whether such information was submitted or considered in the initial benefit determination.  Additional considerations shall be required in the case of a claim for disability benefits.  For example, the claim will be reviewed without deference to the initial adverse benefits determination and, if the initial adverse benefit determination was based in whole or in part on a medical judgment, the Plan Administrator will consult with a health care professional with appropriate training and experience in the field of medicine involving the medical judgment.  The health care professional who is consulted on appeal will not be the same individual who was consulted during the initial determination or the subordinate of such individual.  If the Plan Administrator obtained the advice of medical or vocational experts in making the initial adverse benefits determination (regardless of whether the advice was relied upon), the Plan Administrator will identify such experts.

(iv.) The decision on review will include a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records or other information relevant to the Claimant’s claim for benefits.

f. Exhaustion of Remedies:

A Claimant must follow the claims review procedures under this Agreement and exhaust his or her administrative remedies before taking any further action with respect to a claim for benefits.

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C. Arbitration:

If claimants continue to dispute the benefit denial based upon completed performance of this Agreement or the meaning and effect of the terms and conditions thereof, then claimants may submit the dispute to an Arbitrator for final arbitration.  The Arbitrator shall be selected by mutual agreement of the Bank and the claimants.  The Arbitrator shall operate under any generally recognized set of arbitration rules.  The parties hereto agree that they and their heirs, personal representatives, successors and assigns shall be bound by the decision of such Arbitrator with respect to any controversy properly submitted to it for determination.

Where a dispute arises as to the Bank’s discharge of the Officer “for cause,” such dispute shall likewise be submitted to arbitration as above described and the parties hereto agree to be bound by the decision thereunder.

XIII. TERMINATION OR MODIFICATION OF AGREEMENT BY REASON OF CHANGES IN THE LAW, RULES OR REGULATIONS

The Bank is entering into this Agreement upon the assumption that certain existing tax laws, rules and regulations will continue in effect in their current form.  If any said assumptions should change and said change has a detrimental effect on this Agreement, then the Bank reserves the right to terminate or modify this Agreement accordingly.  Any such termination or modification shall not be effective to decrease or restrict any Officer’s Accrued Liability Retirement Account under this Agreement, determined as of the date of amendment, unless agreed to in writing by the Officer, and provided further, no amendment shall be made, or if made, shall be effective, if such termination or modification would cause the Agreement to violate Internal Revenue Code Section 409A.   In the event this Agreement is terminated, such termination shall not cause a distribution of benefits, except under limited circumstances as permitted under Section 409A (i.e., 30 days before or 12 months after a Change in Control event, upon termination of all arrangements of the same type, or upon corporate dissolution or bankruptcy).  Upon a Change of Control, this paragraph shall become null and void effective immediately upon said Change of Control.

- 12 - -

IN WITNESS WHEREOF, the parties hereto acknowledge that each has carefully read this Agreement and executed the original thereof on the first day set forth hereinabove, and that, upon execution, each has received a conforming copy.

	BANK OF UPSON
	Thomaston, Georgia
	By:
Witness	(Bank Officer other than Insured)	Title
Witness	Trae D. Dorough

- 13 - -

BENEFICIARY DESIGNATION FORM FOR THE OFFICER SALARY CONTINUATION AGREEMENT

I.	PRIMARY DESIGNATIONS
	A.	Person(s) as a Primary Designation: (Please indicate the percentage for each beneficiary.)
	1.	Name:		Relationship:		SS#:		%
			(Street)		(City)		(State)	(Zip)
	2.	Name:		Relationship:		SS#:		%
			(Street)		(City)		(State)	(Zip)
	3.	Name:		Relationship:		SS#:		%
			(Street)		(City)		(State)	(Zip)
	4.	Name:		Relationship:		SS#:		%
			(Street)		(City)		(State)	(Zip)

II.	ESTATE AND/OR TRUST AS PRIMARY DESIGNATIONS
	A.	Estate as a Primary Designation: An Estate can still be listed even if there is no will.
		My Primary Beneficiary is The Estate of						as set forth in the Last Will and
				(Insert full name)
		Testament dated the	day of			, 200	and any codicils thereto.
	B.	Trust as a Primary Designation:
		Name of the Trust:
		Execution Date of the Trust:			Name of the Trustee:
		Beneficiary of the Trust: (please indicate the percentage for each beneficiary):
		Name(s):
		Name(s):
		Is this an Irrevocable Life Insurance Trust?        □ Yes            □ No
		(If yes and this designation is for a Joint Beneficiary Designation Agreement, an Assignment of Rights form must be completed.)

- 14 - -

III.	SECONDARY (CONTINGENT) DESIGNATIONS
	A.	Person(s) as a Secondary (Contingent) Designation: (Please indicate the percentage for each beneficiary in the event of the Primary’s Death.)
	1.	Name:		Relationship:		SS#:		%
			(Street)		(City)		(State)	(Zip)
	2.	Name:		Relationship:		SS#:		%
			(Street)		(City)		(State)	(Zip)
	3.	Name:		Relationship:		SS#:		%
			(Street)		(City)		(State)	(Zip)
	4.	Name:		Relationship:		SS#:		%
			(Street)		(City)		(State)	(Zip)

IV.	ESTATE AND/OR TRUST AS SECONDARY (CONTINGENT) DESIGNATIONS
	A.	Estate as a Secondary (Contingent) Designation:
		My Primary Beneficiary is The Estate of					as set forth in the last will and
		Testament dated the	day of		, 200	and any codicils thereto.
	B.	Trust as a Secondary (Contingent) Designation:
		Name of the Trust:
		Execution Date of the Trust:		Name of the Trustee:
		Beneficiary of the Trust: (please indicate the percentage for each beneficiary):
		Name(s):
		Name(s):
		Is this an Irrevocable Life Insurance Trust?        □ Yes             □ No
		(If yes and this designation is for a Joint Beneficiary Designation Agreement, an Assignment of Rights form must be completed.)
V.	SIGN AND DATE
	This Beneficiary Designation Form is valid until the participant notifies the bank in writing.

Trae D. Dorough Date

 - 15 - -

EX-10.16

Exhibit 10.16

JOINT BENEFICIARY DESIGNATION

AGREEMENT

Insurer:
Policy Number:
Bank:	Bank of Upson
Insured:	Trae D. Dorough
Relationship of Insured to Bank:	Officer

The respective rights and duties of the Bank and the Insured in the above-referenced policy shall be pursuant to the terms set forth below:

I. DEFINITIONS

Refer to the policy contract for the definition of any terms in this Agreement that are not defined herein.  If the definition of a term in the policy is inconsistent with the definition of a term in this Agreement, then the definition of the term as set forth in this Agreement shall supersede and replace the definition of the terms as set forth in the policy.

II. POLICY TITLE AND OWNERSHIP

Title and ownership shall reside in the Bank for its use and for the use of the Insured all in accordance with this Agreement.  The Bank alone may, to the extent of its interest, exercise the right to borrow or withdraw on the policy cash values.  Where the Bank and the Insured (or assignee, with the consent of the Insured) mutually agree to exercise the right to increase the coverage under the subject Joint Beneficiary Designation policy, then, in such event, the rights, duties and benefits of the parties to such increased coverage shall continue to be subject to the terms of this Agreement.

III. BENEFICIARY DESIGNATION RIGHTS

The Insured (or assignee) shall have the right and power to designate a beneficiary or beneficiaries to receive the Insured’s share of the proceeds payable upon the death of the Insured, and to elect and change a payment option for such beneficiary, subject to any right or interest the Bank may have in such proceeds, as provided in this Agreement.

IV. PREMIUM PAYMENT METHOD

Subject to the Bank’s absolute right to surrender or terminate the policy at any time and for any reason, the Bank shall pay an amount equal to the planned premiums and any other premium payments that might become necessary to keep the policy in force.

V. TAXABLE BENEFIT

Annually the Insured will receive a taxable benefit equal to the assumed cost of insurance as required by the Internal Revenue Service.  The Bank (or its administrator) will report to the Insured the amount of imputed income each year on Form W-2 or its equivalent.

VI. DIVISION OF DEATH PROCEEDS

Subject to Paragraphs VII and X herein, the division of the death proceeds of the policy is as follows:

A. Should the Insured be employed by the Bank or retired from the bank at the time of death, the Insured’s beneficiary(ies), designated in accordance with Paragraph III, shall be entitled to an amount equal to the lesser of Two Hundred Fifty Thousand and 00/100th Dollars ($250,000.00) or eighty percent (80%) of the net-at-risk insurance portion of the proceeds.  The net-at-risk insurance portion is the total proceeds less the cash value of the policy.

B. Should the Insured not be employed by the Bank at the time of death, the Insured’s beneficiary(ies), designated in accordance with Paragraph III, shall be entitled to the percentage as set forth hereinbelow of the proceeds described in Subparagraph VI (A) above that corresponds to the Insured’s age:

Age of the Insured	Vested (to a maximum of 100%)
59 and under	0%
Age 60	50%
61-65	An additional 10% vested per year
	(to a total maximum of 100%)

C. The Bank shall be entitled to the remainder of such proceeds.

D. The Bank and the Insured (or assignees) shall share in any interest due on the death proceeds on a pro rata basis as the proceeds due each respectively bears to the total proceeds, excluding any such interest.

2

VII. DIVISION OF THE CASH SURRENDER VALUE OF THE POLICY

The Bank shall at all times be entitled to an amount equal to the policy’s cash value, as that term is defined in the policy contract, less any policy loans and unpaid interest or cash withdrawals previously incurred by the Bank and any applicable surrender charges.  Such cash value shall be determined as of the date of surrender or death as the case may be.

VIII. PREMIUM WAIVER

If the policy contains a premium waiver provision, such waived amounts shall be be considered for all purposes of this Agreement as having been paid by the Bank.

IX. RIGHTS OF PARTIES WHERE POLICY ENDOWMENT OR ANNUITY ELECTION EXISTS

In the event the policy involves an endowment or annuity element, the Bank’s right and interest in any endowment proceeds or annuity benefits, on expiration of the deferment period, shall be determined under the provisions of this Agreement by regarding such endowment proceeds or the commuted value of such annuity benefits as the policy’s cash value.  Such endowment proceeds or annuity benefits shall be considered to be like death proceeds for the purposes of division under this Agreement.

X. TERMINATION OF AGREEMENT

A. This Agreement shall terminate at the option of the Bank following thirty (30) days written notice to the Insured upon the happening of any one of the following:

1. The Insured shall leave the employment of the Bank (voluntarily or involuntarily) prior to the Insured attaining the age of sixty (60); or

2. The Insured shall be discharged from employment with the Bank for cause.  The term “for cause” shall mean: (i) gross negligence or neglect in the performance of his job; (ii) the commission of a felony or gross misdemeanor involving fraud, dishonesty or willful violation of any law that results in any adverse effect on the Bank.

B. Upon such termination of this Agreement but prior to the termination of the policy by the Bank, the Insured (or assignee) shall have a fifteen (15) day option to receive from the Bank an absolute assignment of the policy in consideration of a cash payment to the Bank, whereupon this Agreement shall terminate.  Such cash payment referred to hereinabove shall be the greater of:

3

1. The Bank’s share of the cash value of the policy on the date of such assignment, as defined in this Agreement; or

2. The amount of the premiums that have been paid by the Bank prior to the date of such assignment.

C. Should the Insured (or assignee) fail to exercise this option within the prescribed fifteen (15) day period, the Insured (or assignee) agrees that all of his rights, interest and claims in the policy shall terminate as of the date of the termination of this Agreeement.

D. In the event, however, that the Insured is terminated “for cause” under the terms as set forth in Subparagraph X (A) (2) above, the Bank shall have the right, in its sole discretion, to allow the Insured to exercise the option as set forth above.

E. Except as provided above, this Agreement shall terminate upon distribution of the death benefit proceeds in accordance with Paragraph VI above.

XI. INSURED’S OR ASSIGNEE’S ASSIGNMENT RIGHTS

The Insured may not, without the written consent of the Bank, assign to any individual, trust or other organization, any right, title or interest in the subject policy nor any rights, options, privileges or duties created under this Agreement.

XII. AGREEMENT BINDING UPON THE PARTIES

This Agreement shall bind the Insured and the Bank, their heirs, successors, personal representatives and assigns.

XIII. ADMINISTRATIVE AND CLAIMS PROVISIONS

The following provisions are part of this Agreement and are intended to meet the requirements of the Employee Retirement Income Security Act of 1974 (“ERISA”):

A. Plan Administrator:

The “Plan Administrator” of this Joint Beneficiary Designation Agreement shall be Bank of Upson.  As Plan Administrator, the Bank shall be responsible for the management, control, and administration of this Agreement as established herein.  The Plan Administrator may delegate to others certain aspects of the management and operation responsibilities of

4

the Agreement, including the employment of advisors and the delegation of any ministerial duties to qualified individuals.

B. Basis of Payment of Benefits:

Direct payment by the Insurer is the basis of payment of benefits under this Agreement, with those benefits in turn being based on the payment of premiums as provided in this Agreement.

C. Claim Procedures:

Claim forms or claim information as to the subject policy can be obtained by contacting Benmark, Inc. (800-544-6079).  When the Plan Administrator has a claim which may be covered under the provisions described in the insurance policy, they should contact the office named above, and they will either complete a claim form and forward it to an authorized representative of the Insurer or advise the Plan Administrator what further requirements are necessary.  The Insurer will evaluate and make a decision as to payment.  If the claim is payable, a benefit check will be issued in accordance with the terms of this Agreement.

In the event that a claim is not eligible under the policy, the Insurer will notify the Plan Administrator of the denial pursuant to the requirements under the terms of the policy.  If the Plan Administrator is dissatisfied with the denial of the claim and wishes to contest such claim denial, they should contact the office named above and they will assist in making an inquiry to the Insurer.  All objections to the Insurer’s actions should be in writing and submitted to the office named above for transmittal to the Insurer.

XIV. GENDER

Whenever in this Agreement words are used in the masculine or neuter gender, they shall be read and construed as in the masculine, feminine or neuter gender, whenever they should so apply.

XV. INSURANCE COMPANY NOT A PARTY TO THIS AGREEMENT

The Insurer shall not be deemed a party to this Agreement, but will respect the rights of the parties as herein developed upon receiving an executed copy of this Agreement.  Payment or other performance in accordance with the policy provisions shall fully discharge the Insurer from any and all liability.

5

XVI. CHANGE OF CONTROL

Change of Control shall be defined as the occurrence of any one of the following:

a. the acquisition of more than fifty percent (50%) of the value or voting power of the Bank’s stock by a person or group;

b. the acquisition in a period of twelve (12) months or less of at least thirty-five percent (35%) of the Bank’s stock by a person or group;

c. the replacement of a majority of the Bank’s board in a period of twelve (12) months or less by Directors who were not endorsed by a majority of the current board members; or

d. the acquisition in a period of twelve (12) months or less of forty percent (40%) or more of the Bank’s assets by an unrelated entity.

For the purposes of this Agreement, transfers made on account of deaths or gifts, transfers between family members or transfers to a qualified retirement plan maintained by the Bank shall not be considered in determining whether there has been a Change in Control.  Upon a Change of Control, if the Insured’s employment is subsequently terminated, except for cause, then the Insured shall be one hundred percent (100%) vested in the benefits promised in this Agreement and, therefore, upon the death of the Insured, the Insured’s beneficiary(ies) (designated in accordance with Paragraph III) shall receive the death benefit provided herein as if the Insured had died while employed by the Bank (see Subparagraphs VI [A]).

XVII. AMENDMENT OR REVOCATION, AND EXCHANGE OF POLICY

Subject to the Bank’s sole and absolute right to surrender or terminate any and all life insurance policies that are the subject matter of this Agreement, it is agreed by and between the parties hereto that, during the lifetime of the Insured, this Agreement may be amended or revoked at any time or times, in whole or in part, by the mutual written consent of the Insured and the Bank.  The Bank may, however, unilaterally and without the consent of the Insured, exchange any life insurance policy(ies) that are the subject matter of this Agreement, with or without replacing said policy(ies) and, in the event of a same or similar exchange, the Insured expressly agrees to the same.

XVIII. EFFECTIVE DATE

The Effective Date of this Agreement shall be March 28, 2006.

6

XIX. SEVERABILITY AND INTERPRETATION

If a provision of this Agreement is held to be invalid or unenforceable, the remaining provisions shall nonetheless be enforceable according to their terms.  Further, in the event that any provision is held to be overbroad as written such provision shall be deemed amended to narrow its application to the extent necessary to make the provision enforceable according to law and enforced as amended.

XX. TERMINATION OR MODIFICATION OF AGREEMENT BY REASON OF CHANGES IN THE LAW, RULES OR REGULATIONS

The Bank is entering into this Agreement upon the assumption that certain existing tax and accounting laws, rules and regulations will continue in effect in their current form.  If any said assumptions should change and said change has a detrimental effect on this Joint Beneficiary Designation Agreement, then the Bank reserves the right to terminate or modify this Agreement accordingly.  Upon a Change of Control, this paragraph shall become null and void effective immediately upon said Change of Control.

XXI. APPLICABLE LAW

The laws of the State of Georgia shall govern the validity and interpretation of this Agreement.

Executed at Upson, Georgia this ____ day of _____________, 2007.

	BANK OF UPSON
	Thomaston, Georgia
	By:
Witness	(Bank Officer other than Insured)	Title
Witness	Trae D. Dorough

7

BENEFICIARY DESIGNATION FORM

FOR THE JOINT BENEFICIARY DESIGNATION AGREEMENT

I.	PRIMARY DESIGNATIONS
	A.	Person(s) as a Primary Designation: (Please indicate the percentage for each beneficiary.)
	1.	Name:		Relationship:		SS#:		%
			(Street)		(City)		(State)	(Zip)
	2.	Name:		Relationship:		SS#:		%
			(Street)		(City)		(State)	(Zip)
	3.	Name:		Relationship:		SS#:		%
			(Street)		(City)		(State)	(Zip)
	4.	Name:		Relationship:		SS#:		%
			(Street)		(City)		(State)	(Zip)

II.	ESTATE AND/OR TRUST AS PRIMARY DESIGNATIONS
	A.	Estate as a Primary Designation: An Estate can still be listed even if there is no will.
		My Primary Beneficiary is The Estate of						as set forth in the Last Will and
				(Insert full name)
		Testament dated the	day of			, 200	and any codicils thereto.
	B.	Trust as a Primary Designation:
		Name of the Trust:
		Execution Date of the Trust:			Name of the Trustee:
		Beneficiary of the Trust: (please indicate the percentage for each beneficiary):
		Name(s):
		Name(s):
		Is this an Irrevocable Life Insurance Trust?        □ Yes      □ No
		(If yes and this designation is for a Joint Beneficiary Designation Agreement, an Assignment of Rights form must be completed.)

8

III.	SECONDARY (CONTINGENT) DESIGNATIONS
	A.	Person(s) as a Secondary (Contingent) Designation: (Please indicate the percentage for each beneficiary in the event of the Primary’s Death.)
	1.	Name:		Relationship:		SS#:		%
			(Street)		(City)		(State)	(Zip)
	2.	Name:		Relationship:		SS#:		%
			(Street)		(City)		(State)	(Zip)
	3.	Name:		Relationship:		SS#:		%
			(Street)		(City)		(State)	(Zip)
	4.	Name:		Relationship:		SS#:		%
			(Street)		(City)		(State)	(Zip)

IV.	ESTATE AND/OR TRUST AS SECONDARY (CONTINGENT) DESIGNATIONS
	A.	Estate as a Secondary (Contingent) Designation:
		My Primary Beneficiary is The Estate of					as set forth in the last will and
		Testament dated the	day of		, 200	and any codicils thereto.
	B.	Trust as a Secondary (Contingent) Designation:
		Name of the Trust:
		Execution Date of the Trust:		Name of the Trustee:
		Beneficiary of the Trust: (please indicate the percentage for each beneficiary):
		Name(s):
		Name(s):
		Is this an Irrevocable Life Insurance Trust?        □ Yes         □ No
		(If yes and this designation is for a Joint Beneficiary Designation Agreement, an Assignment of Rights form must be completed.)

V.	SIGN AND DATE
	This Beneficiary Designation Form is valid until the participant notifies the bank in writing.
	Trae D. Dorough	Date

9

EX-13.1

Exhibit 13.1

Selected Financial Data

The following tables present certain selected historical financial information for SouthCrest Financial Group, Inc. and subsidiaries. The data should be read in conjunction with the historical financial statements, including the notes thereto, and other financial information concerning the Company.

SouthCrest Financial Group, Inc. and Subsidiaries

Summary Financial Data

For the Periods Ended December 31,

(all dollars in thousands except per share amounts)

	2007			2006			2005			2004			2003
Income Statement
Net interest income	$	22,552		$	19,191		$	17,469		$	11,460		$	9,130
Provision for loan losses		639			839			751			375			324
Net interest income after provision for loan losses		21,913			18,352			16,718			11,085			8,806
Other income		6,797			5,364			4,478			3,357			3,511
Other expense		19,634			15,167			14,196			8,925			7,592
Income taxes		2,776			2,775			2,156			1,660			1,390
Net income		6,300			5,774			4,844			3,857			3,335
Per Common Share
Basic and diluted earnings per share	$	1.60		$	1.58		$	1.36		$	1.52		$	1.53
Cash dividends declared	$	0.52		$	0.50		$	0.48		$	0.46		$	0.46
Dividend payout ratio		32.5	%		31.4	%		35.3	%		30.3	%		30.1	%
Book value	$	18.24		$	17.09		$	14.93		$	14.21		$	11.94
Average shares outstanding		3,946,689			3,643,218			3,572,904			2,545,724			2,182,421
Period End
Total loans	$	374,054		$	335,452		$	276,475		$	229,232		$	123,187
Net loans		369,102			330,972			272,998			226,071			121,362
Earning assets (1)		534,108			483,653			410,897			374,684			237,239
Assets		606,009			544,017			450,848			407,512			256,205
Deposits		513,931			462,622			377,900			352,252			227,469
Stockholders' equity		71,721			67,555			53,456			50,740			26,045
Common shares outstanding		3,931,532			3,952,328			3,581,193			3,571,556			2,180,585
Average Balances
Loans	$	353,581		$	293,489		$	249,394		$	156,003		$	119,676
Earning assets (1)		510,869			430,630			394,076			269,651			231,131
Assets		573,421			473,173			428,360			292,446			251,687
Deposits		483,484			397,637			366,877			256,035			222,463
Borrowed funds		10,829			12,960			4,695			580			1,892
Stockholders’ equity		69,677			57,456			52,125			33,062			25,014
Performance Ratios
Return on average assets		1.10	%		1.22	%		1.13	%		1.32	%		1.32	%
Return on average stockholders' equity		9.04	%		10.05	%		9.29	%		11.67	%		13.33	%
Net interest margin		4.41	%		4.46	%		4.43	%		4.25	%		3.95	%
Average equity to average assets		11.81	%		12.15	%		12.17	%		11.31	%		9.94	%
Average loans to average deposits		73.13	%		73.81	%		67.98	%		60.93	%		53.79	%

(1) Earning assets include interest-bearing deposits in banks, federal funds sold, securities available for sale, securities held to maturity, restricted equity securities, and loans net of unearned income.

1

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

The purpose of the following discussion is to address information relating to the financial condition and results of operations of SouthCrest Financial Group, Inc. that may not be readily apparent from a review of the consolidated financial statements and notes thereto. This discussion should be read in conjunction with information provided in the Company’s consolidated financial statements and accompanying footnotes.

Critical Accounting Policies

Our accounting and reporting policies are in accordance with accounting principles generally accepted in the United States of America and conform to general practices within the banking industry. Our significant accounting policies are described in the notes to the consolidated financial statements. Certain accounting policies require management to make significant estimates and assumptions, which have a material impact on the carrying value of certain assets and liabilities, and we consider these to be critical accounting policies. The estimates and assumptions used are based on historical experience and other factors that management believes to be reasonable under the circumstances. Actual results could differ significantly from these estimates and assumptions, which could have a material impact on the carrying value of assets and liabilities at the balance sheet dates and results of operations for the reporting periods.

We believe the following are critical accounting policies that require the most significant estimates and assumptions that are particularly susceptible to a significant change in the preparation of our financial statements.

Allowance for Loan Losses. A provision for loan losses is based on management’s opinion of an amount that is adequate to absorb losses inherent in the existing loan portfolio. The allowance for loan losses is established through a provision for losses based on management’s evaluation of current economic conditions, volume and composition of the loan portfolio, the fair market value or the estimated net realizable value of underlying collateral, historical charge-off experience, the level of nonperforming and past due loans, and other indicators derived from reviewing the loan portfolio. The evaluation includes a review of all loans on which full collection may not be reasonably assumed. Should the factors that are considered in determining the allowance for loan losses change over time, or should management’s estimates prove incorrect, a different amount may be reported for the allowance and the associated provision for loan losses. For example, if economic conditions in our market areas experience an unexpected and adverse change, we may need to increase our allowance for loan losses by taking a charge against earnings in the form of an additional provision for loan loss.  Additionally, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses.  Such agencies may require adjustments to the allowance for loan losses based on their judgments of information available to them at the time of their examination.

Investment Securities. Investment securities are classified into three categories. Debt securities that we have the intent and ability to hold to maturity are classified as “held-to-maturity securities” and reported at amortized cost. Debt and equity securities that are bought and held principally for the purpose of selling in the near term are classified as “trading securities” and reported as fair value, with unrealized gains and losses included in earnings. Debt securities not classified as either held-to-maturity securities or trading securities and equity securities not classified as trading securities are classified as “available-for-sale securities” and reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of other comprehensive income. We did not have any securities classified as trading securities as of December 31, 2007 or 2006.

Premiums and discounts related to securities are amortized or accreted over the life of the related security as an adjustment to the yield using the effective interest method and considering prepayment assumptions. Dividend and interest income is recognized when earned.

Gains and losses on sales and calls of securities are recognized on the settlement date based on the adjusted cost basis of the specific security. The financial statement impact of settlement date accounting versus trade date accounting is not significant. Declines in fair value of individual held to maturity and available for sale securities below their cost that are other than temporary result in write-downs of the individual securities to their fair value.

Management conducts regular reviews to assess whether the values of our investments are impaired and if any impairment is other than temporary. If we determine that the value of any investment is other than temporarily impaired, we record a charge against earnings in the amount of the impairment. The determination of whether other than temporary impairment has occurred involves significant assumptions, estimates and judgments by management. Changing economic conditions — global, regional or related to industries of specific issuers — could adversely affect these values. Impairment losses recognized for securities totaled $-0-, $-0-, and $600,000 for the years ending December 31, 2007, 2006, and 2005.

2

Recent Accounting Pronouncements

Information regarding accounting pronouncements affecting future periods are summarized in Note 1, “Summary of Significant Accounting Policies” on page F-11.

Business Combinations

On July 1, 2007, the Company completed its acquisition of Bank of Chickamauga (“Chickamauga”).  Under terms of the agreement, the shareholders of Chickamauga were to receive approximately $18 million cash, less certain costs related to the merger and the termination of the Chickamauga defined benefit plan.  The Chickamauga shareholders received $17.2 million in cash with an additional $687,000 being placed in a reserve account to fund the costs related to terminating the Chickamauga defined benefit plan that are in excess of the $568,500 that was accrued by  Chickamauga as a liability to the pension plan.  The reserve account is recorded as a liability in the financial statements.  Any funds remaining after the termination of the defined benefit plan will be distributed to the Chickamauga shareholders, which will increase the purchase amount recorded at acquisition.  The timing of the plan termination is dependent on approval by the Internal Revenue Service.  Management anticipates that the termination of the plan could occur in the second or third quarter of 2008.

The merger was accounted for under the purchase method of accounting. Accordingly, results of operations for Bank of Chickamauga are included in the results of operations of SouthCrest prospectively from the date of merger, and the purchase price of $17.35 million, which includes merger costs of $150,000 but does not include the $687,000 reserve established for the defined benefit plan termination, was allocated to the fair values of Chickamauga’s assets and liabilities.  As a result, the Company recorded a core deposit intangible of $715,000 and goodwill of $5,198,000.  The core deposit intangible is being amortized on an accelerated basis over the estimated life of the deposits.  Because of the uncertainty of the final disposition of the defined benefit plan and the resulting distribution from the reserve account, the purchase price and the resulting allocation have not been finalized.

Statement of Position 03-03, Accounting for Certain Loans or Debt Securities Acquired in a Transfer (“SOP 03-03”) addresses accounting for differences between contractual cash flows and cash flows expected to be collected from an investor's initial investment in loans or debt securities (loans) acquired in a transfer if those differences are attributable, at least in part, to credit quality.  It includes loans acquired in purchase business combinations.  The SOP does not apply to loans originated by the entity.  At July 1, 2007 the Company identified $559,000 in loans to which the application of the provisions of SOP 03-03 was required.  The carrying amount of these loans was reduced to $376,000 at July 1, 2007, representing a nonaccretable adjustment of $183,000.  Because the Company could not reasonably estimate cash flows expected to be collected from these loans, interest income is only recognized when cash payments are received on such loans.  The purchase accounting adjustments reflect a reduction in loans for $183,000 related to Chickamauga’s impaired loans, thus reducing the carrying value of these loans to $376,000 as of July 1, 2007.  At December 31, 2007, the carrying value of these loans had been reduced to $366,000 due to cash payments received from the borrowers.  Interest income recognized on such loans is not material for the six month period ended December 31, 2007.

On October 31, 2006, the Company completed its merger with Maplesville Bancorp (“Maplesville”), the parent company of Peachtree Bank (“Peachtree”).  Under terms of the merger, shareholders of Maplesville received approximately 371,135 shares of SouthCrest stock and $7,557,000 in cash.  The merger was accounted for using the purchase method of accounting.  Accordingly, results of operations for Peachtree are included in the results of operations of SouthCrest prospectively from the date of merger, and the purchase price of $17.3 million was allocated to the fair values of Maplesville’s assets and liabilities.  As a result, the Company recorded a core deposit intangible of $1.1 million and goodwill of $6.4 million.  The core deposit intangible is being amortized on an accelerated basis over the estimated life of the deposits.

The mergers with Chickamauga and Maplesville are summarized in Note 2, “Business Combinations” in the Notes to Consolidated Financial Statements on page F-13.

Results of Operations for the Years Ended December 31, 2007, 2006 and 2005

Net income for 2007 was $6,300,000 or $1.60 per share compared to net income of $5,774,000 or $1.58 per share for 2006, an increase of $526,000 or 9.1%.    The primary reasons for the increase in net income in 2007 relate to the inclusion of the results of operations of Peachtree Bank for a full year in 2007 compared to two months in 2006 as that merger was completed on October 31, 2006, and the inclusion of six months of operations for Bank of Chickamauga as that merger was completed on July 1, 2007.

For 2006, net income was $5,774,000 or $1.58 per share compared to net income of $4,844,000 or $1.36 per

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share for 2005, an increase of $930,000 or 16.9%.  The primary reasons for the increase in net income were an increase in net interest income of $1,722,000 and an increase in other income of $886,000.

Certain reclassifications to prior year balance sheets and income statements have been made to conform to current classifications. These reclassifications have no impact on net income or stockholders’ equity as previously reported.

Net interest income. A significant portion of SouthCrest’s results of operations are determined by its ability to manage effectively interest income and expense. Since market forces and economic conditions beyond the control of management determine interest rates, the ability to generate net interest income is dependent upon SouthCrest’s ability to maintain an adequate spread between the rate earned on earning assets and the rate paid on interest-bearing liabilities, such as deposits and borrowings. Thus, net interest income is the key performance measure of income.

Table 1 below presents various components of assets and liabilities, interest income and expense as well as their yield/cost for the fiscal years ended 2007, 2006 and 2005. In this table, amounts related to average balances and interest income and interest expense for Chickamauga and Peachtree are included prospectively from the dates of their respective mergers:

Table 1.  Average Consolidated Balance Sheets and Net Interest Income Analysis

For the Years Ended December 31,

(Dollars in thousands)

	For the Years Ended December 31,
	2007								2006								2005
	Average Balances (1)			Income/ Expense		Yields/ Rates			Average Balances (1)			Income/ Expense		Yields/ Rates			Average Balances (1)			Income/ Expense		Yields Rates
Loans	$	353,581		$	29,455		8.33	%	$	293,489		$	23,314		7.94	%	$	249,394		$	17,943		7.19	%
Taxable securities		118,846			5,695		4.79	%		111,511			4,859		4.36	%		121,260			5,041		4.16	%
Nontaxable securities(2)		21,398			830		3.88	%		12,492			551		4.41	%		12,271			557		4.54	%
Federal funds sold		10,207			497		4.87	%		9,569			509		5.32	%		6,642			195		2.94	%
Interest bearing deposits in banks		6,837			382		5.59	%		3,569			191		5.35	%		4,509			157		3.48	%
Total earning assets		510,869			36,859		7.21	%		430,630			29,424		6.83	%		394,076			23,893		6.06	%
Cash and due from banks		13,930								12,987								10,861
Allowance for loan losses		(4,861	)							(3,832	)							(3,265	)
Other assets		53,483								33,388								26,688
Total	$	573,421							$	473,173							$	428,360
Interest bearing demand (3)	$	132,690		$	2,461		1.85	%	$	116,232		$	1,900		1.63	%	$	116,852		$	1,242		1.06	%
Savings		40,163			293		0.73	%		34,454			211		0.61	%		36,845			193		0.52	%
Certificates of deposit		231,194			10,927		4.73	%		183,650			7,497		4.08	%		154,857			4,774		3.08	%
Total interest bearing deposits		404,047			13,681		3.39	%		334,336			9,608		2.87	%		308,554			6,209		2.01	%
Borrowed funds		10,829			626		5.78	%		12,960			625		4.82	%		4,695			215		4.58	%
Total interest bearing liabilities		414,876			14,307		3.45	%		347,296			10,233		2.95	%		313,249			6,424		2.05	%
Noninterest bearing demand deposits		79,437								63,301								58,323
Other liabilities		8,427								4,095								4,030
Redeemable common stock held by ESOP		1,004								1,025								633
Stockholders' equity		69,677								57,456								52,125
Total	$	573,421							$	473,173							$	428,360
Net interest income				$	22,552							$	19,191							$	17,469
Net interest yield on earning assets							4.41	%							4.46	%							4.43	%
Net interest spread							3.76	%							3.88	%							4.01	%

 (1)  Daily averages

 (2)  Tax-equivalent yields are not provided as effect is deemed immaterial.

 (3)  Includes money market accounts

Table 2 presents a Rate/Volume Analysis of Net Interest Income. For each category of interest ­earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) change in volume (change in volume multiplied by old rate); (2) change in rate (change in rate multiplied by old volume); and (3) a combination of change in rate and change in volume. The changes in interest income and interest expense attributable to both volume and rate have been allocated proportionately on a consistent basis to the change due to volume and the change due to rate.

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Table 2.  Changes In Interest Income and Expense

(Dollars in thousands)

	2007 Compared to 2006									2006 Compared to 2005
	Increase (Decrease) Due to Changes In									Increase (Decrease) Due to Changes In
	Volume			Rate			Total			Volume			Rate			Total
Loans	$	4,952		$	1,189		$	6,141		$	3,378		$	1,993		$	5,371
Taxable securities		335			501			836			(418	)		236			(182	)
Nontaxable securities		352			(73	)		279			10			(16	)		(6	)
Federal funds sold		33			(45	)		(12	)		111			203			314
Interest bearing deposits in banks		182			9			191			(38	)		72			34
Total earning assets		5,854			1,581			7,435			3,043			2,488			5,531
Interest bearing demand		287			274			561			(7	)		665			658
Savings		38			44			82			(13	)		31			18
Certificates of deposit		2,123			1,307			3,430			992			1,731			2,723
Total deposits		2,448			1,625			4,073			972			2,427			3,399
Borrowed funds		(112	)		113			1			398			12			410
Total interest bearing liabilities		2,336			1,738			4,074			1,370			2,439			3,809
Net interest income	$	3,518		$	(157	)	$	3,361		$	1,673		$	49		$	1,722

Net interest income increased $3,361,000, or 17.5%, to $22,552,000 for 2007.  Interest income increased $7,435,000 due mostly to an increase of $6,141,000 in interest income on loans.  The average balance outstanding of loans during 2007 increased $60.1 million over 2006 of which $51 million resulted from the addition of Peachtree and Chickamauga, and this growth contributed approximately $4,952,000 to the increase in interest income earned on loans.  The average yield earned on loans increased from 7.94% in 2006 to 8.33% in 2007 primarily due to a 20 basis point increase in the average prime rate for 2007 over 2006.  In addition, the inclusion of Peachtree and Chickamauga also increased the yield as the average yield of the loan portfolios of these banks for 2007 was 8.70%.  The total increase in yield for 2007 accounted for approximately $1,189,000 of the increase in interest income on loans.  The increase in interest income was partially offset by an increase in interest expense of $4,074,000.  The primary reason for the increase in interest expense is the increase of $3,430,000 in interest on certificate accounts.   The growth in the average balance of these accounts of $47.5 million accounted for $2,123,000 of the increase in interest expense, and the increase in rate from 4.08% for 2006 to 4.73% for 2007 accounted for $1,307,000 of the increase in interest expense on certificates.  The increase in the average rate paid on certificate accounts results from competition for this type of deposit in the markets served by the Company.  In general, the growth in the loan portfolio has been funded with certificate accounts.  In 2007, certificates represented 55.7% of interest bearing liabilities compared to 52.9% in 2006.

In 2006, net interest income increased $1,722,000 to $19,191,000.  Of this amount, $420,000 relates to the inclusion of Peachtree for the final two months of the fiscal year.  Interest income increased $5,531,000 due primarily to an increase of $5,371,000 in interest income earned on loans.  Of this increase in income earned on loans, $3,378,000 relates to the growth in the average balances outstanding of $44.1 million in 2006 over 2005.  In addition, the average rate earned on loans increased from 7.19% in 2005 to 7.94% in 2006.  This increase in yield accounts for an increase of $1,993,000 in interest income on loans.  The increase in interest income was offset by an increase in interest expense of $3,809,000.  The growth experienced in the Company’s loan portfolio was funded primarily by increases in certificates of deposit and other borrowed funds.  As a result, the average rate paid on all interest bearing liabilities increased from 2.05% in 2005 to 2.95% in 2006.

For 2007, the net interest yield on earning assets was 4.41% compared to 4.46% earned in 2006 and 4.43% in 2005.  The average yield on earning assets was 7.21% in 2007 compared to 6.83% in 2006 and 6.06% in 2005, while the average rate paid on interest bearing liabilities was 3.45% for 2007, 2.95% for 2006, and 2.05% in 2005.  The increases in the average yield on earning assets relates to the increase in loans as a percentage of total earning assets from 63.2% in 2005 to 68.2% in 2006 and 69.2% in 2007 coupled with the increased average market interest rates in the respective 2007 and 2006 periods.  Loans generally earn a higher rate of interest than other earning assets.  In addition, as a result of increases in interest rates during the year, the average yield earned on loans increased from 7.19% in 2005 to 7.94% in 2006 and 8.33% in 2007.  These average yields are higher than that earned on taxable securities of 4.36% earned in 2006 and 4.79% earned in 2007.  The increase in the average rate paid on interest bearing liabilities is primarily the result of increases in rates paid on certificates of deposit, which increased from 3.08% for 2005 to 4.08% for 2006 and 4.73% in 2007.

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Provision for Loan Losses. The provision for loan losses for 2007 was $639,000 compared to $839,000 for 2006 and $751,000 provided in 2005. In 2007, the Company charged-off loans, net of recoveries, totaling $531,000 or 0.15% of average loans outstanding compared to net chargeoffs in 2006 of $467,000, or 0.16% of average loans outstanding,  and net chargeoffs in 2005 of $435,000, or 0.17% of average loans.

The provision for loan losses is determined primarily by management’s evaluation concerning the level of the allowance for loan losses. For further discussion, refer to the discussion below titled “Allowance for Loan Losses.”

Other Income. Total other income in 2007 was $6,797,000 compared to $5,364,000 in 2006, an increase of $1,433,000 or 26.7%.  Other income in 2005 was $4,478,000.

Service charges (including NSF and overdraft charges) on deposit accounts were $3,846,000 in 2007 compared to $3,304,000 in 2006 and $3,264,000 for 2005, an increase of $542,000 or 16.4%.  As a percent of the average balances of interest-bearing checking and noninterest-bearing checking accounts, these service charges were 2.50% of such accounts for 2007, 2.64% for 2006 and 2.70% for 2005.  In 2007, NSF fee income increased  $67,000.  Generally, these service charges have declined due to customers maintaining higher balances which enable them to avoid such fees and charges.

Other service charges were $1,336,000 in 2007 compared to $1,104,000 in 2006 and $930,000 in 2005, an increase of $232,000 in the current year.  Of the increase from 2006 to 2007, $74,000 relates to increased fee income from debit cards.  Of the increase from 2005 to 2006, $120,000 relates to increased fees from debit cards.

The net gain on the sale of loans was $416,000, $159,000, and $148,000 for 2007, 2006, and 2005, respectively.  The gain in 2007 includes $266,000 in the recognition of mortgage servicing rights.  Mortgage volume was $12.3 million, $15.2 million, and $13.5 million for 2007, 2006, and 2005, respectively.  The average profit margin on loans sold improved in 2007 in a more steady mortgage interest rate environment.

Income from bank-owned life insurance was $594,000, $340,000, and $146,000 for the years ended December 31, 2007, 2006, and 2005, respectively, which represents increases of $254,000 in 2007 and $194,000 in 2006.  The increases in 2006 relate to purchases of $5.5 million while the increases in 2007 relate primarily to bank-owned life insurance policies assumed in the acquisitions of Peachtree and Chickamauga.   The weighted average earnings yields earned on these policies were 4.13%, 4.34%, and 3.27% for 2007, 2006, and 2005, respectively.

During the first quarter of 2005, the Company recorded an impairment charge of $600,000 on $2.5 million of Federal Home Loan Mortgage Corporation (“Freddie Mac”) and Federal National Mortgage Association (“Fannie Mae”) perpetual preferred stock. The reclassification of an unrealized mark-to-market loss on these securities to an other-than-temporary charge to earnings was based upon a detailed impairment analysis of these securities.  Previous losses on the securities were recognized in the equity section of the balance sheet.  The Company’s conclusion considered the duration and severity of the unrealized loss, the financial condition and near-term prospects of the issuers, and the likelihood of the market value of these instruments increasing to our initial cost basis within a reasonable period of time.  During the third quarter of 2005, the Company initiated a plan to sell a portion of these securities in which the securities would be sold slowly in small blocks.   This plan was completed during the quarter, resulting in gains of $71,000 which are included in net gains on sale of securities available for sale.

In addition to the gain mentioned above, gain on sale of securities available for sale in 2005 also included a $249,000 gain realized on the sale of a common stock investment.  The Company’s cost basis in that investment was $200,000.   In 2005, the Company also recorded a $184,000 loss on the disposal of equipment related to data processing equipment and software that was rendered obsolete as a result of our consolidation of computer systems in November, 2005.

The following table provides information about our other income.

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Table 3.  Summary of Other Income

(Dollars in thousands)

	2007		2006		2005
Service charges on deposits	$	1,004	$	529	$	416
NSF and overdraft charges		2,842		2,775		2,848
Other service charges		1,336		1,104		930
Net gain on sale of loans		416		159		148
Income from bank-owned life insurance		594		340		146
Impairment charge on investments		-		-		(600	)
Gain on sale of securities available for sale		-		-		320
Loss on disposal of assets		-		-		(184	)
Other operating income		605		457		454
	$	6,797	$	5,364	$	4,478

Other Expenses.  For 2007, other expenses were $19,634,000, an increase of $4,467,000 or 29.5% over 2006 expenses of $15,167,000.  Approximately $2,874,000 of the increase in 2007 relates to the acquisition of Peachtree and Chickamauga.  Total expenses in 2006 increased $971,000 over 2005 expenses of $14,196,000.  The largest component of other expenses, salaries and benefits, increased $2,470,000 from 2006 to $10,543,000.  In 2006, salaries and benefits increased $776,000 to $8,073,000.  In addition to the increases caused by the acquisitions of Peachtree and Chickamauga, the Company added staffing in anticipation of opening the new branch in Tyrone, Georgia.  In 2006, salaries and benefits increased $776,000 over 2005, the largest component of the which was an increase of $321,000 in incentive compensation related to the increase in profits for the year.

At the Company’s annual shareholders’ meeting held May 12, 2005, shareholders approved the adoption of the SouthCrest Financial Group, Inc. 2005 Stock Incentive Plan (the “Plan”), which provides for up to 549,000 shares of the Company’s stock to be awarded in the form of stock options. In December, 2005 the Company awarded 183,500 stock options to officers of the Company and the Banks.  Prior to 2006, the Company had elected to follow APB Opinion No. 25, Accounting for Stock Issued to Employees, in accounting for its employee stock options.  Accordingly, no compensation expense was recognized in the Company’s consolidated financial statements because the exercise price of the options equaled the market price of the Company’s common stock on the date of grant.  In December 2004, the FASB issued SFAS No. 123(R), Accounting for Stock-Based Compensation (SFAS No. 123(R)), which the Company adopted in 2006.  SFAS No. 123(R) requires that the fair value of equity instruments such as stock options be recognized as an expense in the historical financial statements as services are performed.   Of the 183,500 options awarded in 2005, 104,000 were exercisable immediately while 79,500 will vest over a five year period beginning in 2006 and will therefore be subject to the expensing requirements under SFAS 123(R).  The Company also awarded 7,900 stock options in December 2006 which will be subject to the requirements of SFAS 123(R).  The Company recorded compensation expenses of $106,000 and $95,000 in 2007 and 2006, respectively relating to  stock options.  No tax benefit was recorded because all of the related stock options were considered tax qualifying.  The accounting implications of the stock option plan are more fully explained in Notes 1 and 10 of Notes to Consolidated Financial Statements.

Equipment and occupancy expenses increased $477,000 in 2007 and $84,000 in 2006.  The addition of Peachtree and Chickamauga accounts for $240,000 of the increase in 2007.  Depreciation expense increased $273,000 in 2007 of which $97,000 results from the acquisitions.  Amortization of intangibles increased $119,000 in 2007 due to the addition of Peachtree and Chickamauga, but decreased $156,000 in 2006 due to reduced amortization of the core deposit intangible recorded in connection with the merger with FNB Polk.  Other operating expenses increased $1,401,000 in 2007 and $267,000 in 2006.  The addition of Peachtree and Chickamauga accounted for $889,000 of the increase in 2007.  In 2007, the Company recorded losses on the sale of OREO totaling $138,000.

Other expenses amounted to 3.42% of average assets in 2007 compared to 3.21% of average assets in 2006 and 3.31% in 2005. The following table provides information about our other expenses.

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Table 4.  Summary of Other Expenses

(Dollars in thousands)

	2007		2006		2005
Salaries and benefits	$	10,543	$	8,073	$	7,297
Equipment and occupancy		2,120		1,650		1,559
Amortization of intangibles		926		807		963
Professional fees		620		439		477
Postage and supplies		692		527		513
Telephone		325		197		187
Advertising		337		261		130
Director fees		409		370		343
Data processing expenses		1,454		1,222		1,087
Other operating expenses		2,208		1,621		1,640
	$	19,634	$	15,167	$	14,196

In the table above, professional fees increased $181,000 in 2007 of which $104,000 is attributable to the addition of Peachtree and Chickamauga.  Postage and supplies increased $165,000 of which $141,000 is attributable to Peachtree and Chickamauga.  Advertising increased $76,000 of which $40,000 relates to Peachtree and Chickamauga.  Director fees increased $39,000 because of Peachtree and Chickamauga.  Data processing fees, which include ATM expenses, increased $232,000 and telephone expenses increased $128,000, primarily as a result of the acquisitions.

Income Tax Expense. Income tax expense in 2007 was $2,776,000 compared to $2,775,000 in 2006 and  $2,156,000 in 2005. The Company’s effective tax rate was 30.6% for 2007 compared to 32.5% for 2006 and 30.8% for 2005. The decline in the effective tax rate from 2006 to 2007 results from the addition of Peachtree and Chickamauga, as both banks have higher levels of tax exempt income relative to pretax income than do Upson and FNB Polk.  The Company’s effective tax rate is lower than statutory tax rates due primarily to certain elements of income that are not subject to taxation, such as the Banks’ earnings from tax-exempt securities and income on bank-owned life insurance.

FINANCIAL CONDITION

Management regularly monitors the financial condition of the Company in order to protect depositors, monitor asset quality and increase current and future earnings. At December 31, 2007 total assets were $606.0 million compared to $544.0 million at December 31, 2006, an increase of $62.0 million of which $73.3 million is attributable to the acquisition of Chickamauga.   The loan portfolio grew from $335.4 million at December 31, 2006 to $374.0 million at December 31, 2007, an increase of $38.6 million of which $26.7 is the result of the addition of Chickamauga.

Securities available for sale increased $17.7 million to $79.2 million of which $24.0 million relates to the acquisition of Chickamauga.  Excluding the impact of Chickamauga, securities available for sale declined by $6.4 million.  Securities held to maturity declined $8.4 million to $58.9 million.

Fixed assets increased $2.8 million to $18.1 million at December 31, 2007.  The addition of Chickamauga  accounted for $0.9 million of the increase.  The remainder of the increase relates primarily to three projects:  the completion of a project in which Bank of Upson rebuilt its main office in Thomaston, Georgia, increasing its size from 16,000 to 26,000 square feet; leasehold improvements at a new SouthCrest Bank branch in Tyrone, Georgia; and a new project undertaken in the fourth quarter of 2007 to build a 12,500 square foot operations center in Thomaston to house the Company’s computer center.

Deposits increased $51.3 million, from $462.6 million at December 31, 2006 to $513.9 million December 31, 2007.  The addition of Chickamauga accounted for $49.7 million of this increase.  Noninterest bearing deposits increased $104,000, interest-bearing checking accounts increased $11.4 million, savings accounts increased $6.5 million, and certificate accounts increased $34.2 million.  Money market accounts declined $774,000.  Federal Home Loan Bank advances declined $2.1 million.  In December 2007, the Company used some of its excess funds to prepay a $5.0 million advance maturing in 2009.  Other borrowed funds relate to a line of credit maintained by the holding company, which increased $5.8 million due to the acquisition of Chickamauga.

Stockholders’ equity increased $4.2 million due primarily to net income retained of $6.3 million less cash dividends of $2.1 million.  Equity also increased by $721,000 due to increases in the fair value of securities available for sale, net of deferred taxes.

8

The Company provides an Employee Stock Ownership Plan (“ESOP”) for its employees.  Because the ESOP provides for the participants to have the option to diversify their account balances or to receive all or a portion of their account balance in cash upon termination, accounting rules require that the fair value of allocated shares held by the ESOP be classified on the balance sheet as a liability and therefore reflected as a reduction of retained earnings.  The ESOP owned 67,054 and 42,773 shares at December 31, 2007 and 2006, respectively, and the fair values of these shares were $1,091,000 and $988,000 at those dates.  In the fourth quarter of 2007, the ESOP purchased 15,880 shares of stock which was funded by a $349,000 loan from the Company.  The loan carries interest at Prime minus 0.50% and is for a term of fifteen years.  The current balance of the loan is carried as a reduction of stockholders’ equity.

Securities. As of December 31, 2007, investment securities comprised 22.8% of the Company’s total assets compared to 23.7% at December 31, 2006, while federal funds sold and interest-bearing deposits in banks comprised approximately 3.3% of total assets at December 31, 2007 and 3.2% of total assets at December 31, 2006.  As the Company’s loan portfolio has grown, investment securities and other earning assets represent a smaller portion of the Company’s balance sheet.

The following table presents, for the periods indicated, the carrying value of the Company’s investments. All securities classified as held to maturity are presented at adjusted cost while securities classified as available for sale are presented at their fair values. There are no securities classified as trading securities. For all securities classified as held to maturity, the Company has the intent and ability to hold them until they mature.

Table 5.  Composition of Securities Portfolio

	As of December 31,
	2007		2006		2005
	(Dollars in thousands)
Securities held to maturity (at amortized cost):
U.S. Treasuries and Agency bonds	$	20,289	$	22,216	$	25,185
State and municipal bonds		6,773		7,387		7,814
Mortgage backed securities		30,823		36,665		44,322
Corporate bonds		1,000		1,000		1,000
Total securities held to maturity		58,885		67,268		78,321
Securities available for sale (at estimated fair value):
U.S. Treasuries and Agency bonds		30,555		34,533		25,580
State and municipal bonds		18,226		11,058		3,945
Mortgage backed securities		28,601		14,198		14,594
Equity securities		1,826		1,730		1,071
Total securities available for sale		79,208		61,519		45,190
Total securities	$	138,093	$	128,787	$	123,511

The decline in held to maturity securities is the result of maturities and monthly principal payments received on mortgage-backed securities being in excess of securities purchased. In 2006 and 2007, these principal reductions were used to fund increases in the loan portfolio.  The increase in securities available for sale from 2006 to 2007 is the result of securities acquired in the addition of Chickamauga.  The following table indicates, at December 31, 2007, the Company’s security portfolio segregated by major category with maturity and average yields presented:

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Table 6.  Maturity of Securities Portfolio

(Dollars in Thousands)

	Within One Year					One to Five Years					Five to Ten Years					Over Ten Years					Total
	$		%			$		%			$		%			$		%			$		%
U.S. Government Agencies	$	12,789		4.57	%	$	16,609		5.03	%	$	8,467		5.13	%	$	12,978		4.58	%	$	50,843		4.82	%
State and municipal bonds (1)		3,549		4.54	%		7,080		4.23	%		7,486		4.11	%		6,885		5.09	%		25,000		4.48	%
Mortgage-backed securities (2)		734		3.94	%		5,889		4.17	%		11,702		4.39	%		41,099		5.04	%		59,424		4.81	%
Other securities (3)		-		0.00	%		401		8.02	%		1,000		6.25	%		1,425		5.88	%		2,826		6.31	%
Total	$	17,072		4.53	%	$	29,979		4.71	%	$	28,655		4.60	%	$	62,387		4.97	%	$	138,093		4.78	%

Notes

(1) Yields on state and municipal bonds are not calculated on a tax-equivalent basis.

(2) Mortgage backed securities are presented according to their final stated maturity.  Their weighted average maturity is shorter because of monthly repayments of principal.

(3) Includes corporate bonds and various equity securities.

Loan Portfolio.  The following table presents various categories of loans contained in the Company’s loan portfolio for the periods indicated.

Table 7.  Composition of Loan Portfolio

As of December 31,

(Dollars in thousands)

	2007		2006		2005		2004		2003
Types of Loans
Commercial, financial and agricultural	$	22,595	$	23,996	$	19,841	$	18,560	$	9,757
Real estate — construction		66,069		59,745		52,122		25,265		9,021
Real estate — mortgage		241,316		211,676		169,555		145,413		68,154
Consumer		38,834		33,690		31,567		35,680		32,352
Other loans		5,162		6,058		3,554		4,415		4,009
Subtotal		373,976		335,165		276,639		229,333		123,293
Less: Unearned income		151		159		164		101		106
Less: Allowance for loan losses		4,952		4,480		3,477		3,161		1,825
Total (net of allowance)	$	368,873	$	330,526	$	272,998	$	226,071	$	121,362

The following presents an analysis of maturities of the Company’s loans as of December 31, 2007, including the dollar amount of the loans maturing subsequent to the year ending December 31, 2008 distinguished between those with predetermined interest rates and those with variable interest rates:

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Table 8.  Loan Maturity Schedule

(Dollars in thousands)

	Due in one year or less		Due in one through five years		Due after five years		Total
Commercial, financial, and agricultural	$	12,143	$	9,872	$	580	$	22,595
Real estate — construction		34,106		29,915		2,048		66,069
Real estate — mortgage		56,046		84,246		101,024		241,316
Consumer		10,505		27,199		1,130		38,834
Other loans		791		471		3,900		5,162
Total	$	113,591	$	151,703	$	108,682	$	373,976
Loans maturing after one year with:
Fixed interest rates			$	126,724	$	41,282	$	128,006
Floating or adjustable interest rates				24,979		67,400		92,379
Total			$	151,703	$	108,682	$	220,385

Nonaccrual, Past Due and Restructured Loans.  The following table presents various categories of nonaccrual, past due and restructured loans in the Company’s loan portfolio as of the dates indicated.

Table 9.  Nonaccrual, Past Due, and Restructured Loans

As of December 31,

(Dollars in thousands)

	2007		2006		2005		2004		2003
Nonaccrual loans	$	1,633	$	479	$	232	$	190	$	-
Loans past due 90 days or more and still accruing	$	247	$	1,015	$	549	$	186	$	118
Loans restructured under troubled debt	$	-	$	-	$	-	$	-	$	-

Impaired loans and the average investment in impaired loans was as follows:

Table 10.  Impaired Loans

As of December 31,

(Dollars in thousands)

	2007		2006		2005		2004		2003
Impaired loans without a valuation allowance	$	-	$	-	$	-	$	-	$	-
Impaired loans with valuation allowances of $245, $72, $35 and $29, respectively	$	1,633	$	479	$	232	$	190	$	-
Average investment in impaired loans for the period	$	507	$	659	$	323	$	47	$	32

At December 31, 2007, 2006, 2005, and 2004, the Company had $1,633,000, $479,000, $232,000 and $190,000 in impaired loans with a valuation allowance and no impaired loans without a valuation allowance. The Company had no impaired loans at December 31, 2003. The average investment in impaired loans during 2007, 2006, 2005 and 2004 was $507,000, $659,000, $323,000 and $47,000, respectively. Interest income recognized on impaired loans for the years ended December 31, 2007, 2006, 2005, 2004, and 2003 was not material.

Accrual of interest is discontinued on a loan when management determines, upon consideration of economic and business factors affecting collection efforts, that collection of interest or principal is not reasonably expected.

Allowance for Loan Losses. The allowance for loan losses at December 31, 2007 was $4,952,000 compared to $4,480,000 at December 31, 2006 and $3,477,000 at December 31, 2005. The allowance for loan losses, as a percentage of total gross loans, at December 31, 2007 was 1.32% compared to 1.34% at December 31, 2006 and 1.26% as of December 31, 2005. The increase in this percentage from 2005 to 2006 relates primarily to the addition reserves acquired through the merger with Peachtree and to the provision for loan losses exceeding the net chargeoffs

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during 2006.  The provision for loan losses during the years ended December 31, 2007, 2006 and 2005 was $639,000, $839,000, and $751,000.

In 2005, the Company changed the way it estimates its allowance for loan losses.  In making this estimate, management utilizes a loan grading system to assign a risk grade to each loan based on factors such as the quality of collateral securing a loan, the financial condition of the borrower and the payment history of each loan.  Based on net charge-off history experienced for each category within the loan portfolio, as well as general economic factors affecting the lending market, management assigns an estimated allowance range for each risk grade within each of the loan categories.  Management then estimates the required allowance.  Included in this estimate of the allowance may be a portion that is not allocated to a specific category of the loan portfolio, but which management deems is necessary based on the overall risk inherent in the loan portfolio.  The estimation of the allowance may change due to fluctuations in any and all of the above factors.  In addition, as trends change in terms of net charge-offs, past due loans, and generally economic conditions of the market areas served by the Company’s subsidiary banks, the assumptions will be adjusted appropriately and these adjustments are reflected in the quarterly analysis of the adequacy of the reserve.

The loan concentrations within the loan portfolio have changed in recent years, both due to changes in the lending practices of Bank of Upson, FNB Polk, and more recently, as a result of the mergers with Peachtree and Chickamauga. The portion of the gross loan portfolio represented by real estate loans have gradually increased, from 55% as of December 31, 2003 to 63% as of December 31, 2006 and 65% at December 31, 2007. Construction loans have increased from 8% of loans at December 31, 2003 to 18% at December 31, 2006 and 2007.  The portion represented by consumer loans declined from 26% of gross loans as of December 31, 2003 to 10% at December 31, 2006 and 2007. Finally, the portion represented by commercial loans decreased from 8% of gross loans as of December 31, 2003 to 7% of loans at December 31, 2006 and  6% of loans at December 31, 2007.

Management considers the allowance for loan losses to be adequate; however, there can be no assurance that charge-offs in future periods will not exceed the allowance for loan losses or that additional provisions for loan losses will not be required.

Summary of Loan Loss Experience. An analysis of the Company’s loan loss experience is included in the following table for the periods indicated.

Table 11.  Analysis of Allowance for Loan Losses

For the Periods Ended December 31,

(Dollars in thousands)

	2007			2006			2005			2004			2003
Balance at beginning of period	$	4,480		$	3,477		$	3,161		$	1,825		$	1,943
Charge-offs
Commercial loans		80			102			31			50			32
Real estate - construction		110			-			-			-			-
Real estate - mortgage		188			263			50			46			87
Consumer		626			393			613			334			461
Other		138			145			199			175			177
Total Charge-offs		1,142			903			893			605			757
Recoveries
Commercial loans		28			6			42			25			6
Real estate - construction		40			-			-			-			-
Real estate - mortgage		20			10			1			30			18
Consumer		448			328			310			172			191
Other		75			92			105			78			100
Total recoveries		611			436			458			305			315
Net (charge-offs)		(531	)		(467	)		(435	)		(300	)		(442	)
Additions charged to operations		639			839			751			375			324
Addition to reserves resulting from business combination		364			631			-			1,261			-
Balance at end of period	$	4,952		$	4,480		$	3,477		$	3,161		$	1,825
Ratio of net charge-offs during theperiod to average loans outstanding during the period		0.15	%		0.16	%		0.17	%		0.19	%		0.37	%

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The following table summarizes the Company’s allowances for loan losses at year-end for 2007, 2006, 2005, 2004, and 2003.

Table 12.  Allocation of Allowance For Loan Losses

At December 31,

(Dollars in thousands)

	2007				2006				2005				2004				2003
	Amount		% of total loan		Amount		% of total loan		Amount		% of total loan		Amount		% of total loan		Amount		% of total loan
Loan Category
Commercial	$	450		6	$	477		7	$	296		7	$	1,019	$	8	$	456		8
Real estate – construction		1,420		18		896		18		782		19		76		11		-		8
Real estate – mortgage		2,130		65		1,895		63		1,418		61		582		63		91		55
Consumer		796		10		928		10		778		11		1,283		16		1,095		26
Other		87		1		94		2		72		2		201		2		183		3
Unallocated		69		-		190		-		131		-		-		-		-		-
Total	$	4,952			$	4,480			$	3,477			$	3,161			$	1,825

Management believes commercial loans generally pose a higher level of risk per loan than other categories in the loan portfolio, such as real estate ­mortgage loans. Management believes that, like consumer loans, commercial loans are more susceptible to risks associated with local economic and employment conditions. In addition, the credit quality of a commercial loan is also often dependent on the borrower’s management and its ability to adapt to changes in the marketplace, both of which are difficult to gauge at the time a loan is made. Given management’s belief regarding the increased risk associated with commercial loans and the Company’s historical loan losses associated with commercial loans, management has traditionally allocated a significant portion of the allowance for loan losses to commercial loans. For the five year period from 2003 through 2007, commercial loans charged off represented 6.9% of total chargeoffs.  Management allocated 9.1% of the allowance for loan losses to commercial loans at December 31, 2007, to reflect management’s belief regarding general risk in the loan category and the Company’s historical losses with respect to commercial loans.

Real estate construction lending has been a significant source of growth for the Company’s loan portfolio in from 2004 through 2007, increasing from $9.0 million at year-end 2003 to $59.7 million at year-end 2006 and $66.1 million at year-end 2007.  The growth in loans real estate construction lending has primarily been for the construction and development of commercial real estate, which generally carries more risk than the construction of a single family dwelling due to the size of the loan and complexity of the project.   Because of this, the Company utilizes architectural firms independent of the contractor in determining the timing and amount of funds advanced for the various projects.

During the latter part of 2007, real estate construction lending in the Atlanta metropolitan area experienced a marked increase in the levels foreclosures and loans designated as nonperforming.  At December 31, 2007, the Company’s construction loans secured by single family dwellings accounted for $5.3 million of this total.  In addition, at December 31, 2007 the Company had $26.8 million in loans outstanding for the purpose of residential development.

In 2007, the Company had $110,000 in construction loan chargeoffs which relates to two single family construction loans to one builder.  This is the only chargeoff for this type of loan that the Company has experienced since 2003.  While this chargeoff only represents 2.6% of all chargeoffs over the last five years, management still increased its allocation of the allowance for loan losses to this category of loans in recognition of the changes in the real estate market caused by reduced demand, particularly in the residential market, and slower economic conditions that began to develop in the latter part of 2007.

Real estate mortgage loans represent real estate mortgages secured by both residential and commercial properties.  At December 31, 2007, loans in this category totaled $241.3 million which represented 65% of total loans.  Loans secured by first liens on 1-4 family dwellings totaled $117.1 million with second mortgages and home equity line of credits totaling $20.1 million.  Loans secured by commercial real estate totaled $93.4 million with all other real estate loans, including those secured by multifamily dwellings and farmland, totaling $10.7 million.  Management allocated 43.0% of the total allowance for loan losses to these loans.

Consumer loans  have historically comprised a high percentage of the Company’s loan charge-offs, comprising

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56.4% of total chargeoffs over the past five years, including 43.5% of total chargeoffs in 2006 and 54.8% of total chargeoffs in 2007. Management believes that the increased risk of loss in this loan category is a result of dependence on the borrower’s financial stability and the nature of the collateral for such loans, generally automobiles, boats and other personal property, which may make it more difficult to recover losses on such loans compared to loans in other categories, such as real estate-mortgage loans. As a result, management has allocated more of the allowance for loan losses to the consumer loan category than its relative composition of the entire portfolio.  Management allocated 20.7% of the allowance for loan losses to these loans while they only comprise 10.4% of the portfolio.  The amount of the allowance allocated to this portion of the portfolio declined as management aligned its reserves more closely to historical chargeoffs and portfolio duration.

The Company had unallocated reserves of approximately $69,000 at December 31, 2007 and $190,000 at December 31, 2006.  While not allocated to any particular category of loans, Management believes it should be included in its estimation of the allowance based on the overall risk inherent in the loan portfolio.

Deposits.  Table 1 on Page 6 contains average amounts of the Company’s deposit accounts and the weighted average interest rates paid on those accounts. As illustrated in Table 1, the Company’s average balance of interest-bearing deposits increased by approximately $69.7 million from 2006 to 2007 and $25.8 million from 2005 to 2006.   Of the $69.7 million increase from 2006 to 2007, $60.1 million relates to the inclusion Peachtree for the entire twelve month period in 2007 compared to only two months in 2007, and to the inclusion of  Chickamauga for six months in 2007.   For 2007, certificates of deposit represented approximately 57.2% of total interest-bearing deposits, compared to 54.8% for 2006 and 50.2% for 2005.

The following table indicates amounts outstanding of time certificates of deposit of $100,000 or more and their respective maturities at December 31, 2007:

Table 13.  Maturity of Certificates of Deposit

With Balances $100,000 Or More

(Dollars in thousands)

Three months or less	$	21,119
Three through six months		15,897
Six through twelve months		27,496
Over one year		20,104
Total	$	84,616

At December 31, 2007, the Company had no deposit relationships that represented concentrations and no brokered deposits.

Return on Equity and Assets. Returns on average consolidated assets and average consolidated equity presented below.

Table 14.  Selected Performance Measures

	2007			2006			2005
Return on average assets		1.10	%		1.22	%		1.13	%
Return on average stockholders' equity		9.04	%		10.05	%		9.29	%
Dividend payout ratio		32.5	%		31.6	%		35.3	%
Average equity to average assets		11.81	%		12.15	%		12.17	%

Short-term borrowings. The table below provides information about short-term borrowed funds.

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Table 15.  Short-term Borrowed Funds

(Dollars in thousands)

	2007			2006			2005
Amount outstanding at year-end	$	3,055		$	110		$	15,000
Average rate		5.51	%		6.25	%		4.52	%
Average amounts outstanding during the year	$	2,288		$	7,627		$	4,372
Average rate		5.52	%		5.15	%		4.46	%
Maximum amount outstanding at any month-end during the year	$	5,550		$	10,000		$	18,700

Liquidity and Interest Rate Sensitivity.   Net interest income, the Company’s primary source of earnings, fluctuates with significant interest rate movements. To lessen the impact of these margin swings,  management strives to structure the balance sheet so that repricing opportunities exist for both assets and liabilities in roughly equivalent amounts at approximately the same time intervals. Imbalances in these repricing opportunities at any point in time constitute interest rate sensitivity.

Interest rate sensitivity refers to the responsiveness of interest-bearing assets and liabilities to changes in market interest rates. The rate sensitive position, or gap, is the difference in the volume of rate sensitive assets and liabilities, at a given time interval. The general objective of gap management is to manage actively rate sensitive assets and liabilities so as to reduce the impact of interest rate fluctuations on the net interest margin. Management generally attempts to maintain a balance between rate sensitive assets and liabilities as the exposure period is lengthened to minimize the Company’s overall interest rate risks.

The asset mix of the balance sheet is continually evaluated in terms of several variables: yield, credit quality, appropriate funding sources and liquidity. To effectively manage the liability mix of the balance sheet, there should be a focus on expanding the various funding sources. The interest rate sensitivity position at year-end 2007 is presented in the following table. The difference between rate sensitive assets and rate sensitive liabilities, or the interest rate sensitivity gap, is shown at the bottom of the table. Since all interest rates and yields do not adjust at the same velocity, the gap is only a general indicator of rate sensitivity.

Table 16.  Interest Sensitivity Gap Analysis

(Dollars in thousands)

	0-3 months			3-12 months			1-5 years			After 5 years			Totals
RATE SENSITIVE ASSETS
Loans	$	127,666		$	68,213		$	150,257		$	27,840		$	373,976
Securities		3,807			13,265			29,979			91,042			138,093
Federal funds sold		9,316			-			-			-			9,316
Interest bearing deposits in other banks		5,983			4,555			99			-			10,637
Total rate sensitive assets	$	146,772		$	86,033		$	180,335		$	118,882		$	532,022
RATE SENSITIVE LIABILITIES
Interest bearing demand and savings deposits	$	-		$	-		$	181,426		$	-		$	181,426
Certificates less than $100 thousand		35,149			101,400			30,441			214			167,204
Certificates $100 thousand and over		21,119			43,393			20,104			-			84,616
Borrowed funds		3,055			-			2,624			3,931			9,610
Total rate sensitive liabilities	$	59,323		$	144,793		$	234,595		$	4,145		$	442,856
Interest-sensitivity gap	$	87,449		$	(58,760	)	$	(54,260	)	$	114,737		$	89,166
Cumulative interest-sensitivity gap	$	87,449		$	28,689		$	(25,571	)	$	89,166
Interest-sensitivity gap ratio		247.4	%		59.4	%		76.9	%		2,868.1	%		120.1	%
Cumulative interest-sensitivity gap ratio		247.4	%		114.1	%		94.2	%		120.1	%

As evidenced by the table above, as of December 31, 2007, SouthCrest was cumulatively asset sensitive within one year. In an increasing interest rate environment, an asset sensitive position (a gap ratio greater than 100%) is generally advantageous as interest earning assets reprice sooner than interest bearing liabilities. Conversely, in a decreasing interest rate environment, an asset sensitive position is generally not favorable since interest earning assets reprice to the lower interest rates sooner than interest bearing liabilities. With respect to SouthCrest, an increase in

15

interest rates could result in higher net interest income while a decline in interest rates could result in decreased net interest income. This, however, assumes that all other factors affecting income remain constant. It also assumes no substantial prepayments in the loan or investment portfolios. In the table above, maturities in the investment portfolio are shown by their stated maturity. The Company’s mortgage­-backed securities portfolio, for example, provides the Company with monthly returns of principal while the balances are shown in the above table are included according to their stated maturity. Also, the table above assumes that interest bearing demand and savings deposits are not assumed to reprice in the short-term and are therefore included in the one to five year period as those accounts may not actually reprice in the event of a general increase in interest rates. Finally, if interest rates remain constant, it is possible for some of the Company’s certificate accounts to reprice at rates that are higher or lower than their current rates, as rates in effect at the time the certificates were opened may be different than those in effect currently.

SouthCrest generally structures its rate sensitivity position to hedge against rapidly rising or falling interest rates. The Asset/Liability Committees of the Banks meet regularly to analyze each bank’s position with respect to interest rate risk and develops future strategies for managing that risk. Such strategy includes anticipation of future interest rate movements.  At December 31, 2007, based on an interest rate risk simulation prepared by an independent firm, the Company estimates that if interest rates rose 200 basis points, net interest income over the next twelve months would increase by 2.03%.  Conversely, if interest rates declined by 200 basis points, the Company’s net interest income would decline by 3.36% over the next twelve months.

The Company, if needed, has the ability to cash out certificates with asset cash flow under normal circumstances. In the event that abnormal circumstances arise, the Banks have federal funds lines of credit in place totaling $21.0 million. In addition, if needed for both short-term and longer-term funding needs, the Banks have available lines of credit with the Federal Home Loan Bank of Atlanta on which $51.6 million was available at December 31, 2007.  The parent company also has an $8.5 million line of credit on which it may draw funds as needed until October 16, 2008, after which date the outstanding principal will be due in ten annual installments.  The line of credit is secured by the common stock of the Company’s subsidiary banks and carries an interest rate of prime rate minus 0.50%. Interest is payable quarterly. The agreement contains restrictions concerning the maintenance of certain minimum capital levels and regulatory capital ratios, loan loss reserves, and profitability ratios. The primary purpose of the line is to provide funds that may be needed by the holding company from time to time.  At December 31, 2007, $6,555,000 was outstanding on this line of credit.

Liquidity represents the ability to provide steady sources of funds for loan commitments and investment activities, as well as to maintain sufficient funds to cover deposit withdrawals and payment of debt and operating obligations. These funds can be obtained by converting assets to cash or by attracting new deposits. SouthCrest’s primary source of liquidity comes from its ability to maintain and increase deposits through its banks. Below are the pertinent liquidity balances and ratios for the periods ended December 31, 2007, 2006, and 2005.

Table 17.  Liquid Assets and Liquidity Measures

(Dollars in thousands)

	2007			2006			2005
Cash and due from banks	$	16,060		$	16,926		$	15,930
Interest bearing deposits in banks		10,637			4,881			4,039
Federal funds sold		9,316			12,054			4,297
Securities		138,093			128,787			123,511
Ratio of CDs> $100 thousand to total deposits		16.46	%		13.77	%		11.01	%
Loan to deposit ratio		72.78	%		72.41	%		73.16	%
Brokered deposits		N/A			N/A			N/A

At December 31, 2007, large denomination certificates accounted for 16.46% of total deposits compared with 13.77% at December 31, 2006 and 11.01% at December, 31, 2005. Large denomination CDs are generally more volatile than other deposits. As a result, management monitors the competitiveness of the rates it pays on its large denomination CDs and periodically adjusts its rates in accordance with market demands. Despite the increase, SouthCrest is not heavily dependent on large deposits in relation to industry averages for institutions of similar size.

Cash and cash equivalents are the primary source of liquidity. At December 31, 2007, cash and due from banks amounted to $16.1 million, representing 2.7% of total assets.  Overnight federal funds sold totaled $9.3 million or 1.5% of total assets and interest-bearing deposits in other financial institutions totaled $10.6 million or 1.8% of total assets. Securities available for sale provide a secondary source of liquidity. Also securities that are classified as held to maturity provide liquidity through cash flows of maturing securities and monthly principal payments on mortgage-backed securities.

16

Brokered deposits are deposit instruments, such as certificates of deposit, deposit notes, bank investment contracts and certain municipal investment contracts that are issued through brokers and dealers who then offer and/or sell these deposit instruments to one or more investors. As of December 31, 2007, SouthCrest had no brokered deposits in its portfolio.

Capital Adequacy. There are two primary measures of capital adequacy for banks and bank holding companies: (i) risk-based capital guidelines and (ii) the leverage ratio.

The risk-based capital guidelines measure the amount of a bank’s required capital in relation to the degree of risk perceived in its assets and its off-balance sheet items. Note that under the risk-based capital guidelines, capital is divided into two “tiers.” Tier 1 capital consists of common shareholders’ equity, non-cumulative and cumulative (bank holding companies only) perpetual preferred stock and minority interest. Goodwill and other intangible assets are subtracted from the total. Tier 2 capital consists of the allowance for loan losses, hybrid capital instruments, term subordinated debt and intermediate term preferred stock. Banks are required to maintain a minimum risk-based capital (tier 1 plus tier 2) ratio of 8.0%, with at least 4.0% consisting of Tier 1 capital.

The second measure of capital adequacy relates to the leverage ratio. The leverage ratio is computed by dividing Tier 1 capital into average total assets.

As of December 31, 2007, the most recent notification from the Federal Deposit Insurance Corporation categorized the Banks as well capitalized under the regulatory framework for prompt corrective action.  To be categorized as well capitalized, the Banks must maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the following table.  There are no conditions or events since that notification that management believes have changed the Banks’ category.  Prompt corrective action provisions are not applicable to bank holding companies.

The table below illustrates the regulatory capital ratios of SouthCrest, Bank of Upson, The First National Bank of Polk County, Peachtree Bank and Bank of Chickamauga as of December 31, 2007.

Table 18.  Regulatory Capital Ratios at December 31, 2007

	Minimum Required			Minimum Required to be Well Capitalized			Consolidated			Upson			Polk			Peachtree			Chickamauga
Regulatory capital ratios
Total risk-based capital		8.00	%		10.00	%		14.51	%		14.53	%		18.84	%		13.72	%		16.68	%
Tier 1 risk-based capital		4.00	%		6.00	%		13.33	%		13.41	%		17.59	%		12.49	%		8.75	%
Tier 1 leverage capital		4.00	%		5.00	%		9.14	%		9.94	%		11.65	%		8.75	%		7.61	%

Fourth Quarter Analysis

In the quarter ended December 31, 2007, the Company recorded net income of $1,446,000 or $0.37 per share compared to $1,493,000 or $0.39 per share, for the same period in 2006, a decline of $47,000.   In comparison to the previous quarter ended September 30, 2007, net income declined $204,000, or $0.05 per share, from earnings of $1,650,000, or $0.42 per share.  Net interest income decline $92,000 due to reductions in the net interest margin; increased depreciation expense of $50,000 relating to completed construction projects; and a $138,000 loss on the sale of OREO in the fourth quarter related the sale of four properties.  Table 19 contains a summary of our quarterly financial results for 2007 and 2006.

17

Table 19.  Quarterly Financial Results

(Dollars in thousands except share and per share amounts)

	For the three months ended
	3/31/2007		6/30/2007		9/30/2007		12/31/2007
Summary of Operations
Interest income	$	8,555	$	8,684	$	9,815	$	9,805
Interest expense		3,187		3,217		3,911		3,992
Net interest income		5,368		5,467		5,904		5,813
Provision for loan losses		149		77		212		201
Other income		1,479		1,625		1,788		1,905
Other expense		4,357		4,688		5,120		5,469
Income tax expense		736		728		710		602
Net income		1,605		1,599		1,650		1,446
Basic and diluted earnings per share	$	0.41	$	0.40	$	0.42	$	0.37
Dividends per share	$	0.13	$	0.13	$	0.13	$	0.13
Average shares outstanding		3,952,328		3,952,328		3,952,328		3,929,956
	For the three months ended
	3/31/2006		6/30/2006		9/30/2006		12/31/2006
Summary of Operations
Interest income	$	6,670	$	6,995	$	7,409	$	8,350
Interest expense		2,089		2,371		2,668		3,105
Net interest income		4,581		4,624		4,741		5,245
Provision for loan losses		108		133		267		331
Other income		1,230		1,334		1,344		1,456
Other expense		3,607		3,708		3,663		4,189
Income tax expense		690		691		706		688
Net income		1,406		1,426		1,449		1,493
Basic and diluted earnings per share	$	0.39	$	0.40	$	0.42	$	0.39
Dividends per share	$	0.125	$	0.125	$	0.125	$	0.125
Average shares outstanding		3,581,193		3,581,193		3,581,193		3,827,272

Effects of Inflation and Changing Prices

Inflation generally increases the cost of funds and operating overhead, and to the extent loans and other assets bear variable rates, the yields on such assets. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on the performance of a financial institution than the effects of general levels of inflation. Although interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services, increases in inflation generally have resulted in increased interest rates. In addition, inflation affects financial institutions’ increased costs of goods and services purchased, the cost of salaries and benefits, occupancy expense, and similar items. Inflation and related increases in interest rates generally decrease the market value of shareholders’ equity. Mortgage originations and refinancings tend to slow as interest rates increase, and can reduce SouthCrest’s earnings from such activities and the income from the sale of residential mortgage loans in the secondary market.

Off-Balance-Sheet Financing

Our financial statements do not reflect various commitments and contingent liabilities that arise in the normal course of business. These off-balance-sheet financial instruments include commitments to extend credit and standby letters of credit. These financial instruments are included in the financial statements when funds are distributed or the instruments become payable. We use the same credit policies in making commitments as we do for on-balance ­sheet instruments. Our exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit, standby letters of credit and credit card commitments is represented by the contractual amount of those instruments. Table 20 below contains a summary of our contractual obligations and commitments as of December 31, 2007.

18

Table 20.  Commitments and Contractual Obligations

(Dollars in thousands)

	Less than one year		1-3 years		3-5 years		Thereafter		Total
Contractual obligations
Deposits having no stated maturity	$	262,111	$	-	$	-	$	-	$	262,211
Certificates of Deposit		201,061		36,704		13,841		214		251,820
Borrowed funds		3,055		1,312		1,312		3,931		9,610
Deferred compensation		43		125		500		19,241		19,909
Construction in progress		1,607		-		-		-		1,607
Leases		141		194		156		388		879
Total contractual obligations	$	468,018	$	38,335	$	15,809	$	23,774	$	545,936
Commitments
Commitments to extend credit	$	33,929	$	-	$	-	$	-	$	33,929
Credit card commitments		9,323		-		-		-		9,323
Commercial standby letters of credit		1,282		-		-		-		1,282
Total commitments	$	44,534	$	-	$	-	$	-	$	44,534

Stock Performance and Dividend Information

After the merger with First Polk Bankshares on September 30, 2004, the Company’s common stock began trading on the over-the-counter market under the symbol “SCSG.”  The graph below compares our total return performance against the Russell 2000 index and the SNL Pink Bank Index, an index of community banks whose stock trades in the over the counter market.  The graph reflects the performance of a $100 investment in the common stock of SouthCrest and the applicable stock indices since January 18, 2005, the first recorded trade in 2005.  The graph assumes reinvestment of all dividends in the common stock of SouthCrest or in the applicable stock index.

Source : SNL Financial LC,  Charlottesville, VA  © 2008

	Period Ending
Index	01/18/05		12/31/05		06/30/06		12/31/06		06/30/07		12/31/07
SouthCrest Financial Group, Inc.		100.00		130.01		134.30		133.36		140.07		119.56
Russell 2000		100.00		108.99		117.94		129.01		137.32		126.98
SNL Bank Pink Index		100.00		108.18		113.38		118.44		117.12		107.49

19

The table below provides the high and low trading prices for transactions during the given quarters for the previous two years on the Over-the-Counter Bulletin Board, as well as dividends paid in those quarters.

	2007						2006
	High		Low		Dividends		High		Low		Dividends
First Quarter	$	22.10	$	19.50	$	0.13	$	24.00	$	21.50	$	0.125
Second Quarter	$	23.50	$	21.40	$	0.13	$	24.50	$	23.50	$	0.125
Third Quarter	$	25.50	$	23.00	$	0.13	$	26.00	$	22.20	$	0.125
Fourth Quarter	$	24.80	$	23.02	$	0.13	$	25.50	$	22.80	$	0.125

The Company generally declares a dividend on the first business day of each quarter to be paid on the last business day of that month to the shareholders of record two weeks prior to the payment date.

20

EX-13.2

Exhibit 13.2

SouthCrest Financial Group, Inc. and Subsidiaries

Consolidated Balance Sheets

December 31, 2007 and 2006

(Dollars in thousands, except per share data)

Assets	2007			2006
Cash and due from banks	$	16,060		$	16,926
Interest-bearing deposits in other banks		10,637			4,881
Federal funds sold		9,316			12,504
Securities available for sale		79,208			61,519
Securities held to maturity (fair value $58,632 and $66,036)		58,885			67,268
Restricted equity securities, at cost		2,008			2,029
Loans held for sale		229			446
Loans, net of unearned income		373,825			335,006
Less allowance for loan losses		4,952			4,480
Loans, net		368,873			330,526
Bank-owned life insurance		16,302			12,521
Premises and equipment, net		18,093			15,324
Goodwill		14,255			9,057
Intangible assets, net		4,792			4,868
Other assets		7,351			6,148
Total assets	$	606,009		$	544,017
Liabilities, Redeemable Common Stock, and Stockholders' Equity
Liabilities:
Deposits:
Noninterest-bearing	$	80,685		$	80,581
Interest-bearing		433,246			382,041
Total deposits		513,931			462,622
Short-term borrowed funds		3,055			110
Long-term borrowed funds		6,555			5,835
Other liabilities		9,656			6,907
Total liabilities		533,197			475,474
Commitments and contingencies
Redeemable common stock held by ESOP		1,091			988
Stockholders' equity
Common stock, par value $1; 10,000,000 shares authorized, 3,931,528 and 3,952,328 issued		3,932			3,952
Additional paid in capital		49,707			50,034
Retained earnings		17,881			13,740
Unearned compensation - ESOP		(349	)		-
Accumulated other comprehensive income (loss)		550			(171	)
Total stockholders' equity		71,721			67,555
Total liabilities, redeemable common stock, and stockholders' equity	$	606,009		$	544,017

See Notes to Consolidated Financial Statements.

F-1

SouthCrest Financial Group, Inc. and Subsidiaries

Consolidated Statements of Income

December 31, 2007, 2006, and 2005

(Dollars in thousands, except per share data)

	2007		2006		2005
Interest income:
Loans	$	29,455	$	23,314	$	17,943
Securities - taxable		5,695		4,859		5,041
Securities - nontaxable		830		551		557
Federal funds sold		497		509		195
Interest-bearing deposits in other banks		382		191		157
Total interest income		36,859		29,424		23,893
Interest expense:
Deposits		13,681		9,608		6,209
Borrowed funds		626		625		215
Total interest expense		14,307		10,233		6,424
Net interest income		22,552		19,191		17,469
Provision for loan losses		639		839		751
Net interest income after provision for loan losses		21,913		18,352		16,718
Other income:
Service charges on deposit accounts		3,846		3,304		3,264
Other service charges and fees		1,336		1,104		930
Net gain on sale of securities available for sale		-		-		320
Impairment charge on investments		-		-		(600	)
Loss on disposal of assets		-		-		(184	)
Net gain on sale of loans		416		159		148
Income on bank-owned life insurance		594		340		146
Other operating income		605		457		454
Total other income		6,797		5,364		4,478
Other expenses:
Salaries and employee benefits		10,543		8,073		7,297
Equipment and occupancy expenses		2,120		1,643		1,559
Amortization of intangibles		926		807		963
Other operating expenses		6,045		4,644		4,377
Total other expenses		19,634		15,167		14,196
Income before income taxes		9,076		8,549		7,000
Income tax expense		2,776		2,775		2,156
Net income	$	6,300	$	5,774	$	4,844
Basic and diluted earnings per share	$	1.60	$	1.58	$	1.36

See Notes to Consolidated Financial Statements.

F-2

SouthCrest Financial Group, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

Years Ended December 31, 2007, 2006, and 2005

(Dollars in thousands)

	2007		2006		2005
Net income	$	6,300	$	5,774	$	4,844
Other comprehensive (loss):
Unrealized holding gain (loss) on securities available for sale arising during period, net of taxes of $436, $144, and $179		721		328		(263	)
Reclassification adjustment for gains included in net income, net of tax of $-0-, $-0-, and $146		-		-		174
Comprehensive income	$	7,021	$	6,102	$	4,755

See Notes to Consolidated Financial Statements.

F-3

SouthCrest Financial Group, Inc. and Subsidiaries

Consolidated Statements of Stockholders' Equity

December 31, 2007, 2006 and 2005

(Dollars in thousands, except per share data)

													Accumulated
							Additional						Other Com-			Unearned			Total
	Common Stock						Paid In			Retained			prehensive			Compensation			Stockholders'
	Shares			Par Value			Capital			Earnings			Income (Loss)			(ESOP)			Equity
Balance, December 31, 2004		3,571,556		$	3,572		$	40,647		$	6,931		$	(410	)	$	-		$	50,740
Net income		-			-			-			4,844			-			-			4,844
Cash dividends declared, $.48 per share		-			-			-			(1,713	)		-			-			(1,713	)
Purchase and retirement of stock		(8,141	)		(8	)		(184	)		-			-			-			(192	)
Shares issued		17,778			17			383			-			-			-			400
Adjustment for shares owned by ESOP		-			-			-			(534	)		-			-			(534	)
Unrealized loss on securities available for sale		-			-			-			-			(89	)		-			(89	)
Balance, December 31, 2005		3,581,193		$	3,581		$	40,846		$	9,528		$	(499	)	$	-		$	53,456
Net income		-			-			-			5,774			-			-			5,774
Adjustment resulting from adoption of Staff Acccounting Bulletin
Number 108		-			-			-			233			-			-			233
Cash dividends declared, $.50 per share		-			-			-			(1,791	)		-			-			(1,791	)
Shares issued in business combination		371,135			371			9,093			-			-			-			9,464
Stock compensation		-			-			95			-			-			-			95
Adjustment for shares owned by ESOP		-			-			-			(4	)		-			-			(4	)
Unrealized gain on securities available for sale		-			-			-			-			328			-			328
Balance, December 31, 2006		3,952,328		$	3,952		$	50,034		$	13,740		$	(171	)	$	-		$	67,555
Net income		-			-			-			6,300			-			-			6,300
Cash dividends declared, $.52 per share		-			-			-			(2,056	)		-			-			(2,056	)
Stock compensation		-			-			106			-			-			-			106
Purchase and retirement of stock		(20,800	)		(20	)		(433	)		-			-			-			(453	)
Adjustment for shares owned by ESOP		-			-			-			(103	)		-			-			(103	)
Change in unearned compensation -
ESOP		-			-			-			-			-			(349	)		(349	)
Unrealized gain on securities available for sale		-			-			-			-			721			-			721
Balance, December 31, 2007		3,931,528		$	3,932		$	49,707		$	17,881		$	550		$	(349	)	$	71,721

See Notes to Consolidated Financial Statements.

F-4

SouthCrest Financial Group, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

For The Years Ended December 31, 2007, 2006, and 2005

(Dollars in thousands)

	2007			2006			2005
OPERATING ACTIVITIES
Net income	$	6,300		$	5,774		$	4,844
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		1,097			824			772
Amortization of intangibles		926			807			963
Other amortization		234			113			253
Provision for loan losses		639			839			751
Stock compensation expense		106			95			-
Impairment loss on investment securities		-			-			600
Gain on sale of securities available for sale		-			-			(320	)
Deferred income taxes		(320	)		(312	)		(582	)
Income on bank-owned life insurance		(594	)		(340	)		(146	)
Increase in interest receivable		(113	)		(421	)		(454	)
Increase (decrease) in income taxes payable		(28	)		(198	)		385
Increase (decrease) in interest payable		(360	)		1,069			369
Net gain on sale of loans		(416	)		(159	)		(148	)
Originations of mortgage loans held for sale		(12,046	)		(15,323	)		(13,092	)
Proceeds from sales of mortgage loans held for sale		12,679			15,341			13,610
Increase in mortgage servicing assets		(266	)		-			-
Loss on disposal of equipment		25			-			184
(Increase) in other assets		167			(1,266	)		(444	)
Increase (decrease) in other liabilities		(135	)		387			(393	)
Net cash provided by operating activities		7,895			7,230			7,152
INVESTING ACTIVITIES
Purchases of securities held to maturity		-			-			(8,667	)
Proceeds from maturities of securities held to maturity		8,319			10,947			18,061
Purchases of securities available for sale		(23,701	)		(11,243	)		(14,007	)
Proceeds from maturities of securities available for sale		28,310			8,725			7,530
Proceeds from sales of securities available for sale		3,002			-			1,794
Net increase (decrease) in restricted equity securities		278			362			(1,650	)
Net (increase) decrease in interest-bearing deposits in other banks		(5,575	)		254			1,207
Net decrease in federal funds sold		11,288			(5,003	)		5,633
Net increase in loans		(13,481	)		(24,529	)		(47,045	)
Purchase of premises and equipment		(2,982	)		(3,393	)		(3,325	)
Proceeds from sale of other real estate owned		584			630			400
Purchase of bank-owned life insurance		-			(5,495	)		-
Net cash acquired in (used in) business combination		(14,247	)		940			-
Net cash (used in) investing activities		(8,205	)		(27,805	)		(40,069	)

F-5

SouthCrest Financial Group, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Continued)

Years Ended December 31, 2007, 2006 and 2005

 (Dollars in thousands)

	2007			2006			2005
FINANCING ACTIVITIES
Net increase in deposits	$	1,637		$	32,692		$	25,648
Proceeds from short-term borrowed funds		-			-			15,000
Principal repayments on short-term borrowed funds		(110	)		(15,110	)		(110	)
Proceeds from long-term borrowed funds		5,775			11,280			1,500
Principal repayments on long-term borrowed funds		(5,000	)		(5,500	)		(1,500	)
Purchase and retirement of stock		(453	)		-			(192	)
Increase in unearned compensation - ESOP		(349	)		-			-
Proceeds from sale of stock		-			-			400
Dividends paid		(2,056	)		(1,791	)		(1,713	)
Net cash provided by (used in) financing activities		(556	)		21,571			39,033
Net increase (decrease) in cash and due from banks		(866	)		996			6,116
Cash and due from banks at beginning of year		16,926			15,930			9,814
Cash and due from banks at end of period	$	16,060		$	16,926		$	15,930
SUPPLEMENTAL DISCLOSURES
Cash paid for:
Interest	$	14,207		$	9,164		$	6,055
Income taxes		2,982			3,156			2,576
NONCASH TRANSACTIONS
Principal balances of loans transferred to other real estate owned	$	704		$	506		$	533
Increase in redeemable common stock held by ESOP		103			4			534
Unrealized gain (loss) on securities available for sale, net		1,157			472			(122	)
BUSINESS COMBINATION
Cash and due from banks	$	3,103		$	8,497		$	-
Federal funds sold		8,100			3,204			-
Interest-bearing deposits in other banks		181			1,096			-
Securities available for sale		24,046			13,451			-
Restricted equity securities		257			121			-
Loans, net		26,344			33,229			-
Bank-owned life insurance		3,187			2,117			-
Premises and equipment		909			1,500			-
Goodwill		5,198			6,392			-
Core deposit intangible		715			1,052			-
Other assets		1,254			808			-
Total assets	$	73,294		$	71,467
Deposits	$	49,672		$	52,030		$	-
Short-term borrowed funds		3,000			-			-
Other liabilities		3,272			2,416			-
Total liabilities assumed		55,944			54,446
Purchase price	$	17,350		$	17,021		$	-

F-6

SOUTHCREST FINANCIAL GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

SouthCrest Financial Group, Inc. (the “Company”) is a bank holding company whose principal activity is the ownership and management of its wholly-owned subsidiary banks (the “Banks”), Bank of Upson (“Upson”), First National Bank of Polk County (“FNB Polk”), Peachtree Bank (“Peachtree”), and Bank of Chickamauga (“Chickamauga”). Upson is a commercial bank located in Thomaston, Upson County, Georgia with seven branches located in Thomaston, Manchester, Warm Springs, Luthersville, Fayetteville, and Tyrone, Georgia. Upson provides a full range of banking services in its primary market area of Upson, Meriwether, Fayette and the surrounding counties. FNB Polk is a commercial bank located in Cedartown, Polk County, Georgia with two branches in Cedartown and one in Rockmart, Georgia. FNB Polk provides a full range of banking services in its primary market area of Polk and the surrounding counties.  Peachtree is a commercial bank located in Maplesville, Chilton County, Alabama and operates one branch in Maplesville and one in Clanton, Alabama.  Chickamauga is a commercial bank located in Chickamauga, Walker County, Georgia where it operates two branches.  The Company considers its banking services to represent a single reporting segment.

Basis of Presentation and Accounting Estimates

The consolidated financial statements include the accounts of the Company and its subsidiaries. Significant intercompany transactions and balances have been eliminated in consolidation.

In preparing the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses, the valuation of foreclosed real estate and contingent assets and liabilities. The determination of the adequacy of the allowance for loan losses is based on estimates that are susceptible to significant changes in the economic environment and market conditions. In connection with the determination of the estimated losses on loans and the valuation of foreclosed real estate, management obtains independent appraisals for significant collateral.

Cash, Due from Banks and Cash Flows

For purposes of reporting cash flows, cash and due from banks include cash on hand, cash items in process of collection and amounts due from banks. Cash flows from loans, interest-bearing deposits in other financial institutions, federal funds sold, and deposits are reported net.

The Company’s subsidiaries are required to maintain reserve balances in cash or on deposit with the Federal Reserve Bank, based on a percentage of deposits. The total of those reserve balances was approximately $2,857,000 and $5,613,000 at December 31, 2007 and 2006.

Securities

Debt securities that management has the positive intent and ability to hold to maturity are classified as held to maturity and recorded at amortized cost. Securities not classified as held to maturity, including equity securities with readily determinable fair values, are classified as available for sale and recorded at fair value with unrealized gains and losses excluded from earnings and reported in accumulated other comprehensive income, net of the related deferred tax effect. Equity securities, including restricted equity securities, without a readily determinable fair value are recorded at cost.

F-7

SOUTHCREST FINANCIAL GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Securities (Continued)

The amortization of premiums and accretion of discounts are recognized in interest income using methods approximating the interest method over the life of the securities. Realized gains and losses, determined on the basis of the cost of specific securities sold, are included in earnings on the settlement date. Declines in the fair value of held to maturity and available for sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

Loans

Loans are reported at their outstanding principal balances less unearned income, net deferred fees, and the allowance for loan losses. Loans held for sale are reported at the lower of cost or fair value, computed using outstanding commitments to sell loans.  Interest income is accrued on the outstanding principal balance. Loan fees collected and certain costs incurred related to loan originations are deferred and amortized as an adjustment to interest income over the life of the related loans using a method that approximates a constant yield.  Deferred fees and costs are recorded as an adjustment to loans outstanding.

The accrual of interest on loans is discontinued when, in management’s opinion, the borrower may be unable to meet payments as they become due, unless the loan is well-secured. All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income, unless management believes that the accrued interest is recoverable through the liquidation of collateral. Interest income on nonaccrual loans is recognized on the cash-basis or cost-recovery method, until the loans are returned to accrual status. Loans are returned to accrual status when all the principal and interest amounts are brought current and future payments are reasonably assured.

A loan is considered impaired when it is probable, based on current information and events, that the Company will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement. Impaired loans are measured by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. The amount of impairment, if any, and any subsequent changes are included in the allowance for loan losses. Interest on accruing impaired loans is recognized as long as such loans do not meet the criteria for nonaccrual status.

Upson services mortgage loans that it originates and sells to the Federal Home Loan Mortgage Corporation (“Freddie Mac”). Upson’s servicing obligations include receiving payments, maintaining escrow accounts and paying hazard insurance, mortgage insurance, and taxes from such accounts, collecting past due fees, resolving payment problems and disputes, generating coupon payment books, and reporting loan balances to the Freddie Mac each month. Upson normally receives servicing fees of one quarter of one percent (.0025) of the outstanding loan balance of the loan servicing portfolio from the Freddie Mac. Upson accounts for loan servicing revenues by booking such revenues as they are received. The Company amortizes mortgage servicing rights over the estimated life of the loans.

Allowance for Loan Losses

The allowance for loan losses is established through a provision for loan losses charged to expense. Loan losses are charged against the allowance when management believes the collectability of the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance.

F-8

SOUTHCREST FINANCIAL GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Allowance for Loan Losses (Continued)

The allowance is an amount that management believes will be adequate to absorb estimated losses relating to specifically identified loans, as well as probable credit losses inherent in the balance of the loan portfolio, based on an evaluation of the collectability of existing loans and prior loss experience. This evaluation also takes into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, concentrations and current economic conditions that may affect the borrower’s ability to pay. While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses, and may require the Company to make additions to the allowance based on their judgment about information available to them at the time of their examinations.

The allowance consists of specific, general and unallocated components. The specific component relates to loans that are classified as either doubtful, substandard or special mention. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

Premises and Equipment

Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed principally by the straight-line method over the estimated useful lives of the assets. The range of estimated useful lives is as follows:

Building and improvements	20–40 Years
Leasehold improvements	5–10 Years
Furniture and equipment	5–10 Years
Computer and software	3–5 Years

Other Real Estate Owned

Other real estate owned represents properties acquired through or in lieu of loan foreclosure and is initially recorded at fair value less estimated costs to sell. Any write-down to fair value at the time of transfer to other real estate owned is charged to the allowance for loan losses. Costs of improvements are capitalized, whereas costs relating to holding other real estate owned and subsequent adjustments to the value are expensed. The carrying amount of other real estate owned at December 31, 2007 and 2006 was $256,000 and $206,000.

Intangible Assets

Intangible assets consist of goodwill, core deposit premiums, and mortgage servicing rights.  Goodwill and core deposit premiums are acquired in connection with business combinations.  The core deposit premium is initially recognized based on a valuation performed as of the consummation date. The core deposit premium is amortized over the average remaining life of the acquired customer deposits, normally 8 to 12 years, using an accelerated or straight-line method, depending on the results of the initial valuation of the specific intangibles.  Mortgage servicing rights are recognized as loans are sold into the secondary market with servicing rights retained and are amortized over the estimated life of underlying loans.  All intangible assets, including goodwill, are tested annually for potential impairment.  No impairment loss was required in 2007, 2006, or 2005.

F-9

SOUTHCREST FINANCIAL GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Income Taxes

Deferred income tax assets and liabilities are determined using the balance sheet method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws.  A valuation allowance may be recorded to reduce net deferred tax assets if it is more likely than not that some portion or all of the deferred tax asset will not be realized.  Such valuation allowances were not required as of December 31, 2007 or 2006.

Stock-Based Compensation

At the Company’s annual shareholders’ meeting held May 12, 2005, shareholders approved the adoption of the SouthCrest Financial Group, Inc. 2005 Stock Incentive Plan (the “Stock Incentive Plan”), which provides for up to 549,000 shares of the Company’s stock to be awarded in the form of stock options.

The Company adopted SFAS No. 123(R), Accounting for Stock-Based Compensation, on January 1, 2006 which requires that the estimated fair value of such equity instruments be recognized as expense as services are performed.

Prior to the adoption of SFAS No. 123(R), the Company recorded stock option expense under the intrinsic method; accordingly, no compensation expense was recognized if the exercise price of the stock option was equivalent to the market price of the Company’s common stock on the date of grant.  If under SFAS 123(R), the Company determined compensation costs based on the fair value at the grant date for its stock options, net income and earnings per share for the year ended December 31, 2005 would have been reduced to the following pro forma amounts:

	2005
Net income as reported	$	4,844
Additional expense had the Company adopted SFAS 123		(622	)
Related tax benefit		235
Pro forma net income	$	4,457
Basic and diluted earnings per share
- As reported	$	1.36
- Pro forma	$	1.25

Responsive to its plan of implementation of SFAS No. 123(R) and consistent with the Company's long-term compensation strategies, the Board of Directors of the Company approved the granting of 183,500 stock options in the fourth quarter of 2005, of which 104,000 were vested in 2005. The decision to vest these options in 2005 was partially made to reduce non-cash compensation expenses that would have been otherwise recorded in future periods following the application of SFAS No. 123(R). Such non-cash compensation expense would have aggregated approximately $622,000 over a period of future years. The vesting of such options is reflected in the 2005 pro forma net income disclosure and related pro forma earnings per share data.  A tax benefit is assumed because the stock options that vested in 2005 are not tax qualifying.

Profit-Sharing Plan

Profit-sharing plan costs are based on a percentage of individual employee’s salary, not to exceed the amount that can be deducted for Federal income tax purposes.

Earnings Per Share

Basic earnings per share are computed by dividing net income by the weighted-average number of shares of common stock outstanding. Diluted earnings per share would be computed by dividing net income by the sum of the weighted-average number of shares of common stock outstanding and dilutive potential common shares, such as

F-10

SOUTHCREST FINANCIAL GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Earnings Per Share  (continued)

outstanding stock options. Dilutive potential common shares are calculated in accordance with the treasury stock method, which assumes that proceeds from the exercise of all warrants and options are used to repurchase common stock at market value.  The amount of shares remaining after the proceeds are exhausted represents the potentially dilutive effect of the securities.  If the price at which the option may be exercised is greater than the average market price of the stock, then the option is assumed to be nondilutive and therefore is not included in the computation of diluted earnings per share.  In 2005, the Company issued 183,500 options under the SouthCrest Financial Group, Inc. 2005 Stock Incentive Plan (the “Stock Incentive Plan”), and in 2006 issued an additional 7,900 options.  The options granted were nondilutive for 2005, 2006, and 2007.  The Stock Incentive Plan is explained more fully in Note 10.  The weighted average number of shares outstanding for the years ended December 31, 2007, 2006, and 2005  was 3,946,689,  3,643,218, and 3,572,720, respectively.

Comprehensive Income

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income.  The Company’s only component of comprehensive income is unrealized gains and losses on available for sale securities.

Recent Accounting Standards

In December 2004, the FASB issued SFAS No. 123(R), Accounting for Stock-Based Compensation (SFAS No. 123(R)).  SFAS No. 123(R) establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services.  This Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions.  SFAS No. 123(R) requires that the fair value of such equity instruments be recognized as an expense in the historical financial statements as services are performed.  Prior to SFAS No. 123(R), only certain pro forma disclosures of fair value were required.  The provisions of this Statement are effective for fiscal years beginning after December 15, 2005. Accordingly, the Company adopted effective January 1, 2006 resulting in additional compensation expense of $106,000 and $95,000 for the years ended December 31, 2007 and 2006.

In March 2005, the SEC released Staff Accounting Bulletin (SAB) No. 107, Share-Based Payment, SAB No. 107 expresses views of the SEC staff regarding the application of SFAS No. 123(R). Among other things, SAB No. 107 provides interpretive guidance related to the interaction between SFAS No. 123(R) and certain SEC rules and regulations, as well as provides the staff’s view regarding the valuation of share-based payment arrangements for public companies.  The Company adopted SAB No. 107 effective January 1, 2006.

In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets-an amendment of FASB Statement No. 140. This statement requires that an entity recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset, and that the servicing assets and servicing liabilities be initially measured at fair value. The statement also permits an entity to choose a subsequent measurement method for each class of separately recognized servicing assets and servicing liabilities. The Company has elected to amortize its mortgage servicing rights.  SFAS No. 156 is effective as of the beginning of the first fiscal year that begins after September 15, 2006. The Company adopted SFAS No. 156 as of January 1, 2007 and it did not have a material impact on the Company’s financial condition or results of operations.

In July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109. This interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. The interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.  FIN 48 clarifies the accounting for uncertainty in income taxes recognized in

F-11

SOUTHCREST FINANCIAL GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Recent Accounting Standards (Continued)

financial statements and requires the impact of a tax position to be recognized in the financial statements if that position is more likely than not of being sustained by the taxing authority.  The years 2004 through 2006 are still subject to audit for the Company’s Federal, Georgia, and Alabama income tax returns.  The Company adopted FIN 48 effective January 1, 2007, and its adoption did not have a material effect on the Company’s consolidated financial position or results of operation.  It is the Company’s policy to recognize interest and penalties associated with uncertain tax positions as components of income taxes.  There were no material interest or penalties accrued during the year ended December 31, 2007.  No material tax uncertainties exist as of December 31, 2007.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements.  SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements, but clarifies and standardizes some divergent practices that have emerged since prior guidance was issued. SFAS No. 157 creates a three-level hierarchy under which individual fair value estimates are to be ranked based on the relative reliability of the inputs used in the valuation. This hierarchy is the basis for the disclosure requirements, with fair value estimates based on the least reliable inputs requiring more extensive disclosures about the valuation method used and the gains and losses associated with those estimates. The Company adopted SFAS No. 157 on January 1, 2008, with no material impact on the Company’s financial condition, results of operations, or liquidity.

In September 2006, the FASB ratified EITF Issue 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements. EITF Issue 06-4 addresses accounting for split-dollar life insurance arrangements after the employer purchases a life insurance policy on the covered employee. This Issue states that an obligation arises as a result of a substantive agreement with an employee to provide future postretirement benefits. Under Issue EITF 06-4, the obligation is not settled upon entering into an insurance arrangement. Since the obligation is not settled, a liability should be recognized in accordance with applicable authoritative guidance. Issue EITF 06-4 is effective for fiscal years beginning after December 15, 2007. In adopting EITF Issue 06-4, the Company will record a liability of $493,000 as of January 1, 2008 with a corresponding offset against retained earnings, and will record compensation expense in 2008 of approximately $100,000 relating to these obligations.

In September 2006, the FASB ratified EITF Issue 06-5, Accounting for Purchases of Life Insurance—Determining the Amount That Could Be Realized in Accordance with FASB Technical Bulletin (“FTB”) No. 85-4, Accounting for Purchases of Life Insurance. This Issue addresses how an entity should determine the amount that could be realized under the insurance contract at the balance sheet date in applying FTB 85-4 and if the determination should be on an individual or group policy basis. EITF Issue 06-5 is effective for fiscal years beginning after December 15, 2006. The adoption of EITF Issue 06-5 did not have a material effect on the Company’s financial statements.

In September 2006, the SEC issued SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements. SAB 108 was issued to clarify the appropriate treatment of misstatements in audited financial statements.  There are two methods for quantifying the effects of financial statement misstatements.  The “rollover” method focuses primarily on the impact of the misstatement on the income statement and, in some cases, considers the impact of reversing prior year misstatements.  However, if the cause of the misstatement does not reverse in the following year, the rollover method would result in the accumulation of misstatements on the balance sheet.  The “iron curtain” method focuses on the impact of the misstatements on the balance sheet.

SAB 108 establishes an approach that requires quantification of effects of the financial statement misstatements on the company’s financial statements and related disclosures.  This dual approach requires consideration of the impact of financial statement misstatements using both the iron curtain and the rollover methods.  SAB 108 permits companies to either restate prior period financial statements to reflect the dual approach method or to record the cumulative effect of initially applying the dual approach by adjusting the carrying value of assets and liabilities as of January 1, 2006 with an offsetting adjustment to the opening balance of retained earnings.

F-12

SOUTHCREST FINANCIAL GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Recent Accounting Standards (Continued)

Prior to the adoption of SAB 108, the Company quantified the impact of misstatements using the rollover method and management determined the impact of those misstatements was not material to the consolidated financial statements.  The prior misstatements resulted from not capitalizing loan servicing rights on mortgage loans sold when future servicing rights were retained.  The Company adopted SAB 108 effective January 1, 2006 and elected to record the cumulative effect of the change, which resulted in the recognition of mortgage servicing rights of $375,000, a $142,000 adjustment to deferred income tax liabilities, and a $233,000 adjustment to retained earnings.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Liabilities.  SFAS No. 159 allows an entity to elect to measure certain financial assets and liabilities at fair value with changes in fair value recognized in the income statement each period.  The statement also requires additional disclosures to identify the effects of an entity’s fair value election on its earnings.  The Company adopted SFAS No. 159 on January 1, 2008, with no material impact on the financial condition, results of operations, or liquidity.   The Company does not anticipate electing fair value to any assets or liabilities.

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations. SFAS No. 141(R) will significantly change how entities apply the acquisition method to business combinations. The most significant changes affecting how the Company will account for business combinations under this Statement include: the acquisition date will be date the acquirer obtains control; all (and only) identifiable assets acquired, liabilities assumed, and noncontrolling interests in the acquiree will be stated at fair value on the acquisition date; assets or liabilities arising from noncontractual contingencies will be measured at their acquisition date fair value only if it is more likely than not that they meet the definition of an asset or liability on the acquisition date; adjustments subsequently made to the provisional amounts recorded on the acquisition date will be made retroactively during a measurement period not to exceed one year; acquisition-related restructuring costs that do not meet the criteria in SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, will be expensed as incurred; transaction costs will be expensed as incurred; reversals of deferred income tax valuation allowances and income tax contingencies will be recognized in earnings subsequent to the measurement period; and the allowance for loan losses of an acquiree will not be permitted to be recognized by the acquirer. Additionally, SFAS No. 141(R) will require new and modified disclosures surrounding subsequent changes to acquisition-related contingencies, contingent consideration, noncontrolling interests, acquisition-related transaction costs, fair values and cash flows not expected to be collected for acquired loans, and an enhanced goodwill rollforward.

The Company will be required to prospectively apply SFAS No. 141(R) to all business combinations completed on or after January 1, 2009. Early adoption is not permitted. For business combinations in which the acquisition date was before the effective date, the provisions of SFAS No. 141(R) will apply to the subsequent accounting for deferred income tax valuation allowances and income tax contingencies and will require any changes in those amounts to be recorded in earnings. At December 31, 2007, the Company had no acquired deferred income tax valuation allowances and income tax contingencies.  Management is currently evaluating the effects that SFAS 141(R) will have on the financial condition, results of operations, liquidity, and the disclosures that will be presented in the consolidated financial statements.

Reclassification of Certain Items

Certain reclassifications to the prior year’s consolidated balance sheets and statements of income have been made to conform to current classification.  These reclassifications have no impact on net income, stockholders’ equity, or cash flows from operations, investing activities, or financing activities as previously reported.

NOTE 2. BUSINESS COMBINATIONS

On July 1, 2007 the Company completed its acquisition of Bank of Chickamauga pursuant to the definitive agreement entered into on February 23, 2007.  Bank of Chickamauga is a community bank located in the City of Chickamauga, Walker County, Georgia where it maintains two offices.  The City of Chickamauga is located in the

F-13

SOUTHCREST FINANCIAL GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2. BUSINESS COMBINATIONS (Continued)

Chattanooga, Tennessee metropolitan area, and completing this merger allows the Company to enter a new market.  Under terms of the definitive agreement, the shareholders of Chickamauga were to receive $18 million cash, less certain costs related to the merger and the termination of the Chickamauga defined benefit plan, in exchange for 100% of the voting stock of Bank of Chickamauga.  At the completion of the acquisition, Chickamauga shareholders received $17.2 million in cash with an additional $687,000 being placed in a reserve account to fund the costs related to terminating the Chickamauga defined benefit plan that are in excess of the $568,500 that was recorded on the books of Chickamauga as accrued pension expense but not yet transferred into the pension plan.  The reserve account is recorded as a liability in the financial statements.  Any funds remaining after the termination of the defined benefit plan will be distributed to the Chickamauga shareholders, which will increase the purchase amount recorded at acquisition.  The timing of the plan termination is dependent on approval by the Internal Revenue Service.  Management anticipates that the termination of the plan could occur in the second or third quarter of 2008.

The merger was accounted for under the purchase method of accounting. Accordingly, results of operations for Bank of Chickamauga are included in the results of operations of SouthCrest prospectively from the date of merger, and the purchase price of $17.35 million, which includes merger costs of $150,000 but does not include the $687,000 reserve established for the defined benefit plan termination, was allocated to the fair values of Chickamauga’s assets and liabilities.  As a result, the Company recorded a core deposit intangible of $715,000 and goodwill of $5,198,000.  The core deposit intangible is being amortized on an accelerated basis over the estimated life of the deposits.  Because of the uncertainty of the final disposition of the defined benefit plan and the resulting distribution from the reserve account, the purchase price and the resulting allocation have not been finalized.

Statement of Position 03-03, Accounting for Certain Loans or Debt Securities Acquired in a Transfer (“SOP 03-03”) addresses accounting for differences between contractual cash flows and cash flows expected to be collected from an investor's initial investment in loans or debt securities (loans) acquired in a transfer if those differences are attributable, at least in part, to credit quality.  It includes loans acquired in purchase business combinations.  The SOP does not apply to loans originated by the entity.  At July 1, 2007 the Company identified $559,000 in loans to which the application of the provisions of SOP 03-03 was required.  The carrying amount of these loans was reduced to $376,000 at July 1, 2007, representing a nonaccretable adjustment of $183,000.  Because the Company could not reasonably estimate cash flows expected to be collected from these loans, interest income is only recognized when cash payments are received on such loans.  The purchase accounting adjustments reflect a reduction in loans for $183,000 related to Chickamauga’s impaired loans, thus reducing the carrying value of these loans to $376,000 as of July 1, 2007.  At December 31, 2007, the carrying value of these loans had been reduced to $366,000 due to cash payments received from the borrowers.  Interest income recognized on such loans is not material for the six month period ended December 31, 2007.

To fund the payments to the Chickamauga shareholders, the Company’s subsidiary banks paid $15 million in special dividends to the parent.  Additionally, the Company received an increase in its line of credit from $5.5 million to $8.0 million on the same terms and conditions as previously existed on the loan.  The interest rate for the line of credit is Prime minus 0.50%.  The Company drew $4 million on this line in connection with the merger.

On October 31, 2006, the Company completed its merger with Maplesville Bancorp. (“Maplesville”), a Maplesville, Alabama based bank holding company and the parent company of Peachtree Bank (“Peachtree”).  In connection with this merger, shareholders of Maplesville received approximately 371,135 shares of SouthCrest stock and $7,557,000 in cash.  The merger was accounted for using the purchase method of accounting.  Accordingly, results of operations for Peachtree Bank are included in the results of operations of SouthCrest prospectively from the date of merger, and the purchase price of $17.3 million, which includes merger costs of $254,000, was allocated to the fair values of Maplesville’s assets and liabilities.  As a result, the Company recorded a core deposit intangible of $1,052,000 and goodwill of $6,392,000.  The core deposit intangible is being amortized on an accelerated basis over the estimated life of the deposits.

Results of operations for Maplesville and Chickamauga are included in the Company’s results of operations prospectively from the dates of their respective merger.  The following schedule presents pro forma information for revenues and net income as if the combinations with Maplesville and Chickamauga had occurred on January 1, 2006.

F-14

SOUTHCREST FINANCIAL GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2. BUSINESS COMBINATIONS (Continued)

Revenues and net income of both acquired entities for periods prior to the dates of acquisition are added to actual results of SouthCrest for each of the periods indicated in the table.  Revenues include interest income plus other income less proforma merger adjustments affecting revenues. Net income includes the net income less the proforma effect of merger adjustments, including the amortization of intangibles:

(Dollars in thousands except per share amounts)	2007		2006
Revenues	$	45,476	$	40,612
Net Income	$	6,229	$	6,158
Earnings per share	$	1.58	$	1.56

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition including subsequent adjustments to the allocation of purchase price:

Assets Acquired and Liabilities Assumed

(Dollars in thousands)

	Chickamauga		Maplesville
Cash and due from banks	$	3,103	$	8,497
Federal funds sold		8,100		3,204
Interest bearing deposits in other banks		181		1,096
Securities available for sale		24,046		13,451
Restricted equity securities		257		121
Loans, net		26,344		33,229
Bank-owned life insurance		3,187		2,117
Premises and equipment		909		1,500
Goodwill		5,198		6,392
Intangible assets		715		1,052
Other assets		1,254		808
Total assets acquired	$	73,294	$	71,467
Deposits	$	49,672	$	52,030
Short-term borrowed funds		3,000		-
Other liabilities		3,272		2,416
Total liabilities assumed		55,944		54,446
Purchase price	$	17,350	$	17,021

NOTE 3. SECURITIES

The amortized cost and fair value of securities are summarized as follows:

F-15

NOTE 3. SECURITIES (Continued)

(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities Available for Sale
December 31, 2007:
U.S. Government and agency securities	$	30,254	$	305	$	(4	)	$	30,555
State and municipal securities		17,958		276		(8	)		18,226
Mortgage-backed securities		28,350		371		(120	)		28,601
Equity securities		1,763		90		(27	)		1,826
	$	78,325	$	1,042	$	(159	)	$	79,208
December 31, 2006:
U.S. Government and agency securities	$	34,762	$	34	$	(263	)	$	34,533
State and municipal securities		11,079		7		(28	)		11,058
Mortgage-backed securities		14,589		4		(395	)		14,198
Equity securities		1,363		367		-			1,730
	$	61,793	$	412	$	(686	)	$	61,519
Securities Held to Maturity
December 31, 2007:
U.S. Government and agency securities	$	20,289	$	45	$	(143	)	$	20,191
State and municipal securities		6,773		142		(18	)		6,897
Mortgage-backed securities		30,823		56		(388	)		30,491
Corporate bonds		1,000		53		-			1,053
		58,885		296		(549	)		58,632
December 31, 2006:
U.S. Government and agency securities	$	22,216	$	34	$	(538	)	$	21,712
State and municipal securities		7,387		175		(5	)		7,557
Mortgage-backed securities		36,665		25		(923	)		35,767
Corporate bonds		1,000		-		-			1,000
		67,268		234		(1,466	)		66,036

The amortized cost and fair value of securities held to maturity and securities available for sale as of December 31, 2007 by contractual maturity are shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

F-16

NOTE 3. SECURITIES (Continued)

	Securities Available For Sale				Securities Held To Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Due within one year	$	16,240	$	16,283	$	55	$	55
Due from one to five years		19,715		20,045		3,644		3,697
Due from five to ten years		8,380		8,494		8,459		8,596
Due after ten years		3,877		3,959		15,904		15,793
Mortgage-backed securities		28,350		28,601		30,823		30,491
Equity securities		1,763		1,826		-		-
	$	78,325	$	79,208	$	58,885	$	58,632

Securities with a carrying value of $72,884,000 and $85,567,000 at December 31, 2007 and 2006, respectively, were pledged to secure public deposits and for other purposes required or permitted by law.

The following table shows the gross unrealized losses and fair value of securities, aggregated by category and length of time that securities have been in a continuous unrealized loss position at December 31, 2007.

	Less Than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
Description of securities	Value		Losses			Value		Losses			Value		Losses
U.S. Government and agency securities	$	1,987	$	(2	)	$	12,835	$	(145	)	$	14,822	$	(147	)
State and municipal securities		703		(8	)		627		(18	)		1,330		(26	)
Mortgage-backed securities		4,645		(27	)		30,234		(481	)		34,879		(508	)
Equity securities		613		(27	)		-		-			613		(27	)
Total	$	7,948	$	(64	)	$	43,696	$	(644	)	$	51,644	$	(708	)

The following table shows the gross unrealized losses and fair value of securities, aggregated by category and length of time that securities have been in a continuous unrealized loss position at December 31, 2006.

	Less Than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
Description of securities	Value		Losses			Value		Losses			Value		Losses
U.S. Government and agency securities	$	3,979	$	(10	)	$	40,469	$	(791	)	$	44,448	$	(801	)
State and municipal securities		2,325		(2	)		4,110		(31	)		6,435		(33	)
Mortgage-backed securities		3,725		(10	)		43,652		(1,308	)		47,377		(1,318	)
Total	$	10,029	$	(22	)	$	88,231	$	(2,130	)	$	98,260	$	(2,152	)

These unrealized losses are considered temporary because of acceptable investment grades on each security,  the likelihood of the market value increasing to the initial cost basis of the security, and the intent and ability of the Company to hold these securities until recovery of the market values.  During the first quarter of 2005, the Company recorded an impairment charge of $600,000 on $2.5 million of Federal Home Loan Mortgage Corporation (“Freddie Mac”) and Federal National Mortgage Association (“Fannie Mae”) perpetual preferred stock. The reclassification of an unrealized mark-to-market loss on these securities to an other-than-temporary charge was based upon a detailed impairment analysis of these securities.  Previous losses on the securities were recognized in the equity section of the balance sheet.  The Company’s conclusion considered the duration and severity of the unrealized loss, the financial condition and near-term prospects of the issuers, and the likelihood of the market value of these instruments increasing to our initial cost basis within a reasonable period of time.  During the third quarter of 2005, the Company initiated a plan to sell a portion of these securities in which the securities would be sold slowly in small blocks.   Certain portions of this investment were sold during 2005, resulting in gains of $71,000 which is included in net gains on sale of securities available for sale.

F-17

SOUTHCREST FINANCIAL GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3. SECURITIES (Continued)

In addition to the gain mentioned above, gain on sale of securities available for sale during 2005 also included a $249,000 gain realized on the sale of a common stock investment. The Company’s cost basis in that investment was $200,000.

NOTE 4. LOANS

The composition of loans is summarized as follows:

	Years Ended December 31,
(Dollars in thousands)	2007			2006
Commercial, financial, and agricultural	$	22,595		$	23,996
Real estate – construction		66,069			59,745
Real estate – mortgage		241,316			211,676
Consumer		38,834			33,690
Other		5,162			6,058
		373,976			335,165
Unearned income		(151	)		(159	)
Allowance for loan losses		(4,952	)		(4,480	)
Loans, net	$	368,873		$	330,526

Loans serviced for others totaled $83,856,000 and $79,680,000 at December 31, 2007 and 2006, respectively.

Changes in the allowance for loan losses are as follows:

	Years Ended December 31,
(Dollars in thousands)	2007			2006			2005
Balance, beginning of year	$	4,480		$	3,477		$	3,161
Provision for loan losses		639			839			751
Loans charged off		(1,142	)		(903	)		(893	)
Recoveries of loans previously charged off		611			436			458
Allowance acquired in business combination		364			631			-
Balance, end of year	$	4,952		$	4,480		$	3,477

The following is a summary of information pertaining to impaired loans:

	As of and for the Years Ended
	December 31,
(Dollars in thousands)	2007		2006		2005
Impaired loans without a valuation allowance	$	-	$	-	$	-
Impaired loans with a valuation allowance		1,633		479		232
Total impaired loans	$	1,633	$	479	$	232
Valuation allowance related to impaired loans	$	245	$	72	$	35
Average investment in impaired loans	$	507	$	659	$	323

Interest income recognized on impaired loans for the years ended December 31, 2007, 2006, and 2005 was immaterial.

There were $1,633,000, and $479,000 loans on nonaccrual status at December 31, 2007 and 2006. Loans of $247,000 and $1,015,000 were past due ninety days or more and still accruing interest at December 31, 2007 and 2006, respectively.

F-18

SOUTHCREST FINANCIAL GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4. LOANS (Continued)

In the ordinary course of business, the Company has granted loans to certain related parties, including executive officers, directors and their affiliates. The interest rates on these loans were substantially the same as rates prevailing at the time of the transaction and repayment terms are customary for the type of loan. Changes in related party loans for the year ended December 31, 2007 are as follows:

(Dollars in thousands)
Balance, beginning of year	5,239
Advances	156
Repayments	(4,546	)
Increase due to business combination	259
Balance, end of year	1,108

NOTE 5. PREMISES AND EQUIPMENT

Premises and equipment are summarized as follows:

	December 31,
(Dollars In Thousands)	2007			2006
Land	$	3,125		$	2,241
Buildings		12,720			10,342
Leasehold improvements		532			19
Construction in progress		393			1,284
Equipment		5,845			4,884
		22,615			18,770
Accumulated Depreciation		(4,522	)		(3,446	)
	$	18,093		$	15,324

Construction in progress amounts at December 31, 2007 relate to the construction of the Company’s operations center in Thomaston, Georgia, and at December 31, 2006 to additions and renovations to Upson’s main office in Thomaston. The project was to be completed in two phases, with the first phase completed in the third quarter of 2006 and the second phase completed in the second quarter of 2007.  The final cost of the project was  approximately $4,869,000.  In 2007 the Company began operating a branch office in a leased facility in Tyrone, Georgia which is subject to a ten year lease.  Leasehold improvements for the office amounted to $513,000.

Leases:

In 2004 the Company leased a branch office location in Fayetteville, Georgia. The lease is for a term of five years.  In 2007, the Company leased a second branch office in Tyrone, Georgia for a term of ten years with certain renewal options.

Rental expense under all operating leases amounted to $114,000, $91,000, and $66,000 for the years ended December 31, 2007, 2006 and 2005, respectively. Commitments for lease obligations are as follows:

(Dollars In Thousands)
2008	$	141
2009		119
2010		75
2011		77
2012		79
Thereafter		388
	$	879

F-19

SOUTHCREST FINANCIAL GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6. INTANGIBLE ASSETS

Following is a summary of information related to intangible assets:

	As of December 31, 2007					As of December 31, 2006
	Gross					Gross
	Carrying		Accumulated			Carrying		Accumulated
(Dollars In Thousands)	Amount		Amortization			Amount		Amortization
Goodwill	$	14,255		-		$	9,057		-
Core deposit intangible	$	9,441	$	(5,159	)	$	8,726	$	(4,233	)
Mortgage servicing rights		863		(353	)		597		(222	)
Total other intangible assets	$	10,304	$	(5,512	)	$	9,323	$	(4,455	)

Annually, intangible assets are reviewed for impairment.  During 2007, no charges for impairment were required.

Amortization expense for the core deposit intangibles was $926,000, $807,000 and $963,000 for the years ended December 31, 2007, 2006 and 2005, respectively.  Amortization expense for the mortgage servicing rights was $131,000 for the year ended December 31, 2007.  The estimated amortization expense of all intangible assets in future years is as follows:

(Dollars In Thousands)
2008	$	1,074
2009		1,038
2010		785
2011		465
2012		432
Thereafter		998
	$	4,792

NOTE 7. DEPOSITS

Deposits are as follows:

	December 31,
(Dollars In Thousands)	2007		2006
Noninterest bearing deposits	$	80,685	$	80,581
Interest checking		83,742		72,386
Money market		55,687		56,461
Savings		41,997		35,542
Certificates of deposit		251,820		217,652
		513,931		462,622

The aggregate amount of time deposits in denominations of $100,000 or more at December 31, 2007 and 2006 was $84,616,000 and $63,708,000, respectively. The scheduled maturities of time deposits at December 31, 2007 are as follows:

(Dollars In Thousands)
2008	$	201,061
2009		20,231
2010		16,475
2011		6,966
2012		6,873
Thereafter		214
	$	251,820

F-20

SOUTHCREST FINANCIAL GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7. DEPOSITS (Continued)

Overdraft demand deposits reclassified to loans totaled $272,000 and $252,000 at December 31, 2007 and 2006, respectively.

NOTE 8. BORROWED FUNDS

Other borrowed funds consist of the following:

	December 31,
(Dollars In Thousands)	2006		2005
Short-term borrowed funds
Federal Home Loan Bank advance with a maturity of March 26, 2008.  Interest is payable monthly at a rate of 5.51%.	$	3,000	$	-
Current portion of Federal Home Loan Bank advance with a maturity of March 5, 2008.  Interest is payable monthly at a rate of 6.25%.  Principal is due in semi-annual installments of $55,000.		55		110
Total short-term borrowed funds		3,055		110
Long-term borrowed funds
Federal Home Loan Bank advance due January 30, 2009.  Interest is payable monthly at 5.05%.		-		5,000
Federal Home Loan Bank advance with a maturity of March 5, 2008.
Interest is payable monthly at a rate of 6.25%.  Principal is due in semi-annual installments of $55,000.		-		55
Line of credit maturing October 1, 2018 secured by common stock of subsidiary banks.  Principal balance outstanding at October 16, 2008 shall be due in ten annual payments beginning October 1, 2009.
Interest is payable quarterly at Prime minus 0.50%.		6,555		780
Total long-term borrowed funds		6,555		5,835
Total borrowed funds	$	9,610	$	5,945

Contractual maturities of other borrowings as of December 31, 2007 are as follows:

(Dollars In Thousands)
2008	$	3,055
2009		656
2010		656
2011		656
2012		656
Thereafter		3,931
	$	9,610

Advances are collateralized by a blanket floating lien on qualifying first mortgages, pledges of certain securities and the Company’s Federal Home Loan Bank stock.

The terms of the line of credit require the maintenance of certain minimum capital levels and regulatory capital ratios, allowance for loan losses, and profitability ratios.  The Company believes it is in compliance with such terms at December 31, 2007.

NOTE 9. EMPLOYEE BENEFIT PLANS

The Company maintains two defined contribution retirement plans (the “Plans”) for its officers and employees:  the SouthCrest Financial Group, Inc. 401(k) and Profit-Sharing Plan (the “401(k) Plan”) and the SouthCrest Financial Group, Inc. Employee Stock Ownership Plan (the “ESOP”).  Annually, the Company makes a determination of the

F-21

SOUTHCREST FINANCIAL GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9. EMPLOYEE BENEFIT PLANS (Continued)

total funds it will contribute to the Plans.  Once determined, funds are first contributed to the 401(k) plan with the remainder contributed to the ESOP.  For the years ended December 31, 2007, 2006, and 2005 the total funds contributed approximated 8% of compensation less amounts paid as incentives and bonuses.

401(k) and Profit Sharing Plan

The 401(k) Plan is available to all eligible employees, subject to certain minimum age and service requirements. For the years ended December 31, 2007 and 2006, the Company contributed 6% of an employee’s compensation to the Plan without regard to an employee’s level of participation.  For the year ended December 31, 2005, the Company made a matching contribution of 75% of the first 8% of an employee’s contribution, for a maximum contribution of 6%.  The contributions expensed were $445,000, $391,000 and $257,000 for the years ended December 31, 2007, 2006 and 2005, respectively.  These expenses are included in salaries and employee benefits expense in the accompanying statements of income.

Employee Stock Ownership Plan

The ESOP is available to all eligible employees, subject to certain age and service requirements.  For the years ended December 31, 2007, 2006 and 2005, the Company contributed $182,000, $143,000 and $220,000, respectively, to the ESOP. These expenses are included in salaries and employee benefits expense in the accompanying statements of income.

In accordance with the ESOP, the Company is expected to honor the rights of certain participants to diversify their account balances or to liquidate their ownership of the common stock in the event of termination. The purchase price of the common stock would be based on the fair market value of the Company’s common stock as of the annual valuation date, which precedes the date the put option is exercised. No participant has exercised their right to diversify their account balances since the inception of the ESOP, and no significant cash outlay is expected during 2006. However, since the redemption of common stock is outside the control of the Company, the Company’s maximum cash obligation based on the approximate market prices of common stock as of the reporting date has been presented outside stockholders’ equity. The amount presented as redeemable common stock held by the ESOP in the consolidated balance sheet represents the Company’s maximum cash obligation and has been reflected as a reduction of retained earnings.

At December 31, 2007 and 2006, the ESOP held 67,054 and 42,773 shares of the Company stock. Shares held by the ESOP considered outstanding for purposes of calculating the Company’s earnings per share were 51,174 and 42,773 shares as of December 31, 2007 and 2006, respectively.  In November 2007, the ESOP purchased 15,880 shares funded by a $349,000 direct loan from the Company.  At December 31, 2007 the balance of the loan was $349,000 and is reported on the balance sheet as “Unearned Compensation – ESOP” and is a reduction of  stockholders’ equity.  This loan carries an interest rate of Prime minus 0.50% and is to be repaid over a term of fifteen years.  At December 31, 2007 the shares secured by the loan had not been allocated to participant accounts and therefore are not considered outstanding for purposes of computing earnings per share.

Deferred Compensation Plan

The Company has a deferred compensation plan for death and retirement benefits for certain key officers. The estimated amounts to be paid under the compensation plan have been funded through the purchase of life insurance policies on the officers. The balance of the policy cash surrender values included in other assets at December 31, 2007 and 2006 is $16,302,000 and $12,521,000, respectively. Income recognized on the policies amounted to $594,000, $340,000 and $146,000 for the years ended December 31, 2007, 2006 and 2005, respectively. The balance of deferred compensation included in other liabilities at December 31, 2007 and 2006 is $4,139,000 and $2,765,000, respectively. Expense recognized for deferred compensation amounted to $470,000, $251,000 and $325,000 for the years ended December 31, 2007, 2006 and 2005, respectively.  In connection with its October 31, 2006 merger with Maplesville, the Company acquired bank-owned life insurance contracts with a fair value of $2,117,000 and assumed $1,483,000 in deferred compensation liabilities.  In connection with its July 1, 2007 merger with Chickamauga, the Company acquired bank-owned life insurance contracts with a fair value of $3,187,000 and assumed $927,000 in deferred compensation liabilities.

F-22

SOUTHCREST FINANCIAL GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9. EMPLOYEE BENEFIT PLANS (Continued)

Defined Benefit Plan

In its July 1, 2007 acquisition of Bank of Chickamauga, the Company assumed the Bank of Chickamauga Defined Benefit Plan (the “Chickamauga Plan”).  In accordance with the Merger Agreement, the Chickamauga Plan  was terminated effective November 1, 2007, and the Company is awaiting Internal Revenue Service approval of the plan termination.  When the Chickamauga Plan is terminated, participants will have the option of receiving a lump sum cash distribution or a private annuity that provides substantially the same benefit as they would have received under the Chickamauga Plan.   At December 31, 2007, the Accumulated Benefit Obligation of the Chickamauga Plan was $2,510,000 and the plan assets were $1,879,000, leaving a plan shortfall of $631,000.  The Accumulated Benefit Obligation was calculated in accordance with IRS regulations governing plan terminations which will be in effect in 2008 when the Chickamauga Plan is terminated.  These regulations will require the use of multiple discount rates correlating to various durations of the estimated plan participant liabilities, resulting in an average discount rate of 4.85%.  At December 31, 2007 the Company had recorded on its books accrued pension expense totaling $568,500 to be used to fund any shortfall in plan assets at the time of the plan termination.  Any legal, actuarial, administrative or benefit costs to terminate the plan in excess of this amount will be funded from the $687,000 which was escrowed at the date of merger.

NOTE 10. STOCK COMPENSATION PLAN

Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment, (“SFAS No. 123(R)”) which was issued by the Financial Accounting Standards Board in December 2004. SFAS No. 123(R) revises SFAS No. 123, Accounting for Stock Based Compensation (“SFAS 123”), and supersedes APB No. 25, Accounting for Stock Issued to Employees, (“APB No. 25”) and its related interpretations. SFAS No. 123(R) requires recognition of the cost of employee services received in exchange for an award of equity instruments in the financial statements over the period the employee is required to perform the services in exchange for the award (presumptively the vesting period). SFAS No. 123(R) also requires measurement of the cost of employee services received in exchange for an award based on the grant-date fair value of the award. SFAS No. 123(R) also amends SFAS No. 95, Statement of Cash Flows, to require that excess tax benefits be reported as financing cash inflows, rather than as a reduction of taxes paid, which is included within operating cash flows.

The Company adopted SFAS No. 123(R) using the modified prospective application as permitted under SFAS No. 123(R).  Accordingly, prior period amounts have not been restated. Under this application, the Company is required to record compensation expense for all awards granted after the date of adoption and for the unvested portion of previously granted awards that remain outstanding at the date of adoption.  For the years ended December 31, 2007 and 2006, the Company recorded compensation expense related to stock options of $106,000 and $95,000, respectively.

Prior to the adoption of SFAS No. 123(R), the Company used the intrinsic value method as prescribed by APB No. 25 and thus recognized no compensation expense for options granted with exercise prices equal to the fair market value of the Company’s common stock on the date of grant.

The Company maintains the SouthCrest Financial Group, Inc. 2005 Stock Incentive Plan (the “Stock Incentive Plan”), which provides for up to 549,000 shares of the Company’s stock to be awarded in the form of stock options.  Both incentive stock options and non-qualified options may be granted under the Plan.  The exercise price of each option equals the market price of the Company’s stock on the date of grant.  The incentive stock options generally vest at the rate of 20% per year over five years, and expire after ten years from the date of grant.  The Company immediately vested a grant of 104,000 stock options in 2005.  At December 31, 2007, 392,100 shares remained available for future grant.  Compensation cost that has been charged against income was approximately $106,000 and $95,000 for the years ended December 31, 2007 and 2006, respectively.  Because all options that are subject to expensing under SFAS No. 123(R) are tax qualifying, it is not expected that recognized compensation expense relating to these stock options will result in future tax benefits.

F-23

SOUTHCREST FINANCIAL GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10. STOCK COMPENSATION PLAN (Continued)

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model.  The Company granted 7,900 and 183,500 stock options during the years ended December 31, 2006 and 2005, respectively, with a fair value of $6.48 and $5.98, respectively, for each option.  No options were granted for the year ended December 31, 2007.  The following table presents the assumptions for the Black-Scholes model used in determining the fair value of options granted to employees in the December, 2006 and 2005:

	2006			2005
Dividend yield		2.16	%		2.13	%
Risk-free interest rate		4.58	%		4.40	%
Expected life	6.5 years			6.5 years
Volatility		26.34	%		23.31	%

A summary of activity in the Stock Incentive Plan is presented below:

	Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2005		-
Granted		183,500	$	23.45
Exercised		-
Forfeited		-
Outstanding at December 31, 2005		183,500	$	23.45
Granted		7,900		23.10
Exercised		-
Forfeited		-
Outstanding at December 31, 2006		191,400	$	23.44
Granted		-
Exercised		-
Forfeited		-
Outstanding at December 31, 2007		191,400	$	23.44	8 years	$	-
Options exercisable at December 31, 2007		135,800	$	23.45	8 years	$	-

Since the inception of the Stock Incentive Plan, no options have been exercised.  Because the end of period stock price was less than or equal to the exercise prices of options outstanding, the options outstanding and exercisable at December 31, 2007 had no intrinsic value.  As of December 31, 2007, there was $325,000 of total unrecognized compensation cost related to non-vested share-based compensation arrangements, which is expected to be recognized over a weighted average life of 3.1 years.

F-24

SOUTHCREST FINANCIAL GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10. STOCK COMPENSATION PLAN (Continued)

Options outstanding at December 31, 2007 were as follows:

		Outstanding					Exercisable
Exercise Price		Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term
$	23.10		7,900	$	23.10	9 years		-	$	23.10	9 years
$	23.45		183,500	$	23.45	8 years		135,800	$	23.45	8 years
Total			191,400					135,800

NOTE 11. INCOME TAXES

The components of income tax expense are as follows:

	Years Ended December 31,
(Dollars in thousands)	2007			2006			2005
Current
Federal	$	2,803		$	2,764		$	2,485
State		293			323			253
Total current		3,096			3,087			2,738
Deferred
Federal		(276	)		(281	)		(491	)
State		(44	)		(31	)		(91	)
Total deferred		(320	)		(312	)		(582	)
	$	2,776		$	2,775		$	2,156

The Company’s income tax expense differs from the amounts computed by applying the Federal income tax statutory rates to income before income taxes. A reconciliation of the differences is as follows:

	Years Ended December 31,
(Dollars in thousands)	2007			2006			2005
Tax provision at statutory rate	$	3,086		$	2,907		$	2,380
State income taxes, net of Federal benefit		164			193			107
Tax-exempt income		(504	)		(358	)		(254	)
Stock option expense		36			33			-
Other		(6	)		-			(77	)
Income tax expense	$	2,776		$	2,775		$	2,156

F-25

NOTE 11. INCOME TAXES (Continued)

The components of deferred income taxes are as follows:

	Years Ended December 31,
(Dollars in thousands)	2006		2005
Deferred tax assets:
Loan loss reserves	$	1,686	$	1,520
Deferred compensation		1,434		696
Securities available for sale		-		103
Security impairment		136		136
Intangibles		674		674
		3,930		3,129
Deferred tax liabilities
Intangibles		535		846
Securities available for sale		334		-
Mortgage servicing rights		192		142
Depreciation		479		448
		1,540		1,436
Net deferred tax assets	$	2,390	$	1,693

The years 2004 through 2006 are still subject to audit for the Company’s Federal, Georgia, and Alabama income tax returns.  No material tax uncertainties exist as of December 31, 2007.

NOTE 12. COMMITMENTS AND CONTINGENCIES LOAN COMMITMENTS

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. They involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amount recognized in the balance sheets. The majority of all commitments to extend credit and standby letters of credit are variable rate instruments.

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for on-balance sheet instruments. A summary of the Company’s commitments is as follows:

(Dollars in thousands)	2007		2006
Commitments to extend credit	$	33,929	$	40,623
Credit card commitments		9,323		9,125
Commercial letters of credit		1,282		741
	$	44,534	$	50,489

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the party. Collateral held varies, but may include accounts receivable, crops, livestock, inventory, property and equipment, residential real estate and income-producing commercial properties.

Credit card commitments are unsecured.

F-26

SOUTHCREST FINANCIAL GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12. COMMITMENTS AND CONTINGENCIES LOAN COMMITMENTS (Continued)

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those letters of credit are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. Collateral held varies and is required in instances which the Company deems necessary.

Contingencies

In the normal course of business, the Company is involved in various legal proceedings. In the opinion of management, any liability resulting from such proceedings would not have a material adverse effect on the Company’s financial statements.

NOTE 13. CONCENTRATIONS OF CREDIT

The Company originates primarily commercial, residential, and consumer loans to customers in its respective markets. The ability of the majority of the Company’s customers to honor their contractual loan obligations is dependent on the economy in the Company’s primary market area.

Eighty two percent of the Company’s loan portfolio is concentrated in loans secured by real estate of which a substantial portion is secured by real estate in the Company’s primary market area. Accordingly, the ultimate collectibility of the loan portfolio is susceptible to changes in market conditions in the Company’s primary market area. The other significant concentrations of credit by type of loan are set forth in Note 4.

The Company, as a matter of policy, does not extend credit to any single borrower or group of related borrowers in excess of regulatory limits, or approximately $6,274,000 for Upson, $3,144,000 for FNB Polk, $2,612,000 for Peachtree, and $1,308,000 for Chickamauga.

NOTE 14. REGULATORY MATTERS

The Company’s bank subsidiaries are subject to certain restrictions on the amount of dividends that may be declared without prior regulatory approval. At December 31, 2007, approximately $1,991,000 of retained earnings was available for dividend declaration without regulatory approval.

The Company and the Banks are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Banks must meet specific capital guidelines that involve quantitative measures of the Company’s and Banks’ assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. Capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Banks to maintain minimum amounts and ratios of Total and Tier I capital to risk-weighted assets, as defined, and of Tier I capital to average assets, as defined. Management believes, as of December 31, 2007 and 2006, the Company and the Banks met all capital adequacy requirements to which they are subject.

As of December 31, 2007, the most recent notification from the Federal Deposit Insurance Corporation categorized the Banks as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Banks must maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the following table. There are no conditions or events since that notification that management believes have changed the Banks’ category. Prompt corrective action provisions are not applicable to bank holding companies.

F-27

SOUTHCREST FINANCIAL GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14. REGULATORY MATTERS (Continued)

The Company and the Banks’ actual capital amounts and ratios are presented in the following table.

(Dollars in thousands)	Actual					For Capital Adequacy Purposes					To Be Well  Capitalized Under Prompt  Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2007
Total Capital to Risk Weighted Assets
Consolidated	$	59,423		14.51	%	$	32,770		8.00	%	$	N/A		N/A
Bank of Upson		31,746		14.53	%		17,480		8.00	%		21,850		10.00	%
FNB Polk County		20,891		18.84	%		8,871		8.00	%		11,089		10.00	%
Peachtree Bank		6,083		13.72	%		3,547		8.00	%		4,434		10.00	%
Bank of Chickamauga		5,911		16.68	%		2,834		8.00	%		3,543		10.00	%
Tier 1 Capital to Risk Weighted Assets
Consolidated	$	54,604		13.33	%	$	16,385		4.00	%	$	N/A		N/A
Bank of Upson		29,304		13.41	%		8,740		4.00	%		13,110		6.00	%
FNB Polk County		19,504		17.59	%		4,436		4.00	%		6,653		6.00	%
Peachtree Bank		5,536		12.49	%		1,774		4.00	%		2,660		6.00	%
Bank of Chickamauga		5,468		8.75	%		1,417		4.00	%		2,126		6.00	%
Tier 1 Capital to Average Assets
Consolidated	$	54,604		9.14	%	$	23,883		4.00	%	$	N/A		N/A
Bank of Upson		29,304		9.94	%		11,796		4.00	%		14,745		5.00	%
FNB Polk County		19,504		11.65	%		6,694		4.00	%		8,368		5.00	%
Peachtree Bank		5,536		8.75	%		2,531		4.00	%		3,164		5.00	%
Bank of Chickamauga		5,468		7.61	%		2,873		4.00	%		3,591		5.00	%
As of December 31, 2006
Total Capital to Risk Weighted Assets
Consolidated	$	60,069		15.97	%	$	30,089		8.00	%	$	N/A		N/A
Bank of Upson		32,120		14.68	%		17,505		8.00	%		21,881		10.00	%
FNB Polk County		21,975		20.19	%		8,705		8.00	%		10,882		10.00	%
Peachtree Bank		6,167		12.83	%		3,844		8.00	%		4,805		10.00	%
Tier 1 Capital to Risk Weighted Assets
Consolidated	$	55,555		14.77	%	$	15,044		4.00	%	$	N/A		N/A
Bank of Upson		29,560		13.51	%		8,752		4.00	%		13,129		6.00	%
FNB Polk County		20,614		18.94	%		4,353		4.00	%		6,529		6.00	%
Peachtree Bank		5,574		11.60	%		1,922		4.00	%		2,883		6.00	%
Tier 1 Capital to Average Assets
Consolidated	$	55,555		10.81	%	$	20,555		4.00	%	$	N/A		N/A
Bank of Upson		29,560		9.85	%		12,004		4.00	%		15,005		5.00	%
FNB Polk County		20,614		12.04	%		6,849		4.00	%		8,561		5.00	%
Peachtree Bank		5,574		9.04	%		2,465		4.00	%		3,082		5.00	%

As a result of the business combinations with Maplesville Bancorp in 2006 and First Polk Bankshares in 2004, the Company recorded additions to its capital representing the fair value of the shares issued to Maplesville and First Polk shareholders. For regulatory capital purposes, the Company, as well as Peachtree Bank and FNB Polk County, must deduct from its regulatory capital the net book value of any intangible assets recorded in connection with the merger. The effect of the purchase accounting adjustments on the regulatory capital calculations is included above.

NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair value is based on discounted cash flows or other valuation techniques. These techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

F-28

SOUTHCREST FINANCIAL GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

SFAS No. 107, Disclosure about Fair Values of Financial Instruments, excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

The following methods and assumptions were used by the Company, in estimating the fair value of its financial instruments:

Cash, Due From Banks, Interest-Bearing Deposits at Other Banks and Federal Funds Sold:  The carrying amount of cash, due from banks, interest-bearing deposits at other banks and federal funds sold approximates fair value.

Securities: Fair value of securities is based on available quoted market prices. The carrying amount of equity securities with no readily determinable fair value, including restricted equity securities, approximates fair value.

Loans: The carrying amount of variable-rate loans that reprice frequently and have no significant change in credit risk approximates fair value. The fair value of fixed-rate loans is estimated based on discounted contractual cash flows, using interest rates currently being offered for loans with similar terms to borrowers with similar credit quality. The fair value of impaired loans is estimated based on discounted contractual cash flows or underlying collateral values, where applicable.

Deposits: The carrying amount of demand deposits, savings deposits, and variable-rate certificates of deposit approximates fair value. The fair value of fixed-rate certificates of deposit is estimated based on discounted contractual cash flows using interest rates currently being offered for certificates of similar remaining maturities.

Short-Term and Long-Term Borrowed Funds: The carrying amount of variable-rate notes payable and short-term Federal Home Loan Bank advances approximates fair value. The fair value of fixed rate Federal Home Loan Bank advances are estimated based on discounted contractual cash flows using the current incremental borrowing rates for similar type borrowing arrangements.

Accrued Interest: The carrying amount of accrued interest approximates fair value.

Bank-Owned Life Insurance: The cash surrender value of bank-owned life insurance approximates its fair value.

Off-Balance Sheet Instruments: The carrying amount of commitments to extend credit and standby letters of credit approximates fair value. The carrying amount of the off-balance sheet financial instruments is based on fees charged to enter into such agreements.

F-29

SOUTHCREST FINANCIAL GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

The estimated fair values and related carrying amounts of the Company’s financial instruments were as follows:

	2007				2006
	Carrying		Fair		Carrying		Fair
(Dollars in thousands)	Amount		Value		Amount		Value
Financial assets
Cash, due from banks, interest bearing deposits in other banks, and federal funds sold	$	36,013	$	36,013	$	34,311	$	34,311
Securities		138,093		137,840		128,787		127,556
Restricted equity securities		2,008		2,008		2,029		2,029
Loans and loans held for sale, net		369,102		378,367		330,972		334,960
Accrued interest receivable		3,901		3,901		3,445		3,445
Bank-owned life insurance		16,302		16,302		12,521		12,521
Financial liabilities
Deposits		513,931		517,638		462,622		463,143
Short-term borrowings		3,055		3,059		110		110
Long-term borrowings		6,555		6,555		5,835		5,832
Accrued interest payable		2,975		2,975		2,875		2,875

NOTE 16. SUPPLEMENTAL FINANCIAL DATA

Components of other operating expenses in excess of 1% of revenue are as follows:

	Years Ended December 31,
	2007		2006		2005
Data processing fees	$	1,454,000	$	1,222,000	$	1,087,000
Professional fees		620,000		439,000		477,000
Postage and supplies		692,000		527,000		513,000
Director fees		409,000		370,000		343,000

F-30

SOUTHCREST FINANCIAL GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17. PARENT COMPANY FINANCIAL INFORMATION

The following information presents the condensed balance sheets of SouthCrest Financial Group, Inc. as of December 31, 2007 and 2006 and the condensed statements of income and cash flows for each of the three years ended December 31, 2007:

CONDENSED BALANCE SHEETS

(Dollars in thousands)	2007		2006
Assets
Cash	$	1,001	$	119
Investment in subsidiaries		78,072		68,642
Securities available for sale		313		380
Other assets		152		297
Total assets	$	79,538	$	69,438
Liablities, redeemable common stock and stockholders' equity
Note payable	$	6,555	$	780
Other liabilities		171		115
Redeemable common stock and stockholders' equity
Redeemable common stock held by ESOP		1,091		988
Stockholders' equity		71,721		67,555
Total liabilties, redeemable common stock and stockholders' equity	$	79,538	$	69,438

CONDENSED STATEMENTS OF INCOME

(Dollars in thousands)	2007			2006			2005
Dividend income from subsidiaries	$	17,942		$	9,120		$	1,950
Gain on securities available for sale		-			-			249
Total income		17,942			9,120			2,199
Interest expense		191			4			-
Other expense		902			750			484
Total expenses		1,093			754			484
Income before income taxes and equity in undisributed income of subsidiaries		16,849			8,366			1,715
Income tax benefits		(382	)		(250	)		(83	)
Income before equity in undistributed income of subsidiaries		17,231			8,616			1,798
Equity in undistributed income (excess of distributions over income) of subsidiaries		(10,931	)		(2,842	)		3,046
Net income	$	6,300		$	5,774		$	4,844

F-31

SOUTHCREST FINANCIAL GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17. PARENT COMPANY FINANCIAL INFORMATION (Continued)

CONDENSED STATEMENTS OF CASH FLOWS

(Dollars in thousands)	2007			2006			2005
OPERATING ACTIVITIES
Net income	$	6,300		$	5,774		$	4,844
Adjustments to reconcile net income to net cash provided by operating activities
(Undistributed income) excess distributions over income of subsidiaries		10,931			2,842			(3,046	)
Gain on sale of securities available for sale		-			-			(249	)
Stock option expense		106			95
Change in other assets		145			(167	)		(89	)
Change in other liabilities		83			115			(33	)
Net cash provided by operating activities		17,565			8,659			1,427
INVESTING ACTIVITIES
Proceeds from sale of securities available for sale		-			-			449
Investment in subsidiaries		(2,250	)		-			-
Cash paid in business combination		(17,350	)		(7,987	)		-
Net cash provided by (used in) investing activities		(19,600	)		(7,987	)		449
FINANCING ACTIVITIES
Proceeds from long-term borrowed funds		5,775			6,280			1,500
Repayment of long-term borrowed funds		-			(5,500	)		(1,500	)
Common stock issued to ESOP		-			-			400
Increase in unearned compensation - ESOP		(349	)		-			-
Purchase and retirement of stock		(453	)		-			(192	)
Dividends paid		(2,056	)		(1,791	)		(1,713	)
Net cash provided by (used in) financing activities		2,917			(1,011	)		(1,505	)
Net increase (decrease) in cash		882			(339	)		371
Cash at beginning of year		119			458			87
Cash at end of year	$	1,001		$	119		$	458
Noncash transactions:
Common stock issued in business combination	$	-		$	9,464		$	-
Unrealized gain on securities available for sale		(67	)		66			-

F-32

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

BOARD OF DIRECTORS AND STOCKHOLDERS

SOUTHCREST FINANCIAL GROUP, INC.

We have audited the accompanying consolidated balance sheets of SouthCrest Financial Group, Inc. and subsidiaries as of December 31, 2007 and 2006, and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2007. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  We were not engaged to perform an audit of the Company’s internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of SouthCrest Financial Group, Inc. and subsidiaries as of December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2007 in conformity with accounting principles generally accepted in the United States of America.

/s/ Dixon Hughes PLLC

Atlanta, Georgia

March 31, 2008

F-33

EX-21.1

Exhibit 21.1

SUBSIDIARIES OF SOUTHCREST FINANCIAL GROUP, INC.

Bank of Upson

(Organized under the laws of the State of Georgia)

The First National Bank of Polk County

(Organized under the laws of the United States)

Peachtree Bank

(Organized under the laws of the State of Alabama)

Bank of Chickamauga

(Organized under the laws of the State of Georgia)

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors

SouthCrest Financial Group, Inc.

Fayetteville, Georgia

We consent to the incorporation by reference in the registration statements No. 333-138733 on Form S-8 and No. 333-138731 on Form S-3, and in the related prospectuses, of SouthCrest Financial Group, Inc. of our report dated March 31, 2008, with respect to the consolidated financial statements of SouthCrest Financial Group, Inc. and subsidiaries which report appears in SouthCrest Financial Group, Inc.’s 2007 Annual Report on Form 10-K.

/s/  Dixon Hughes PLLC

Atlanta, Georgia

March 31, 2008

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO RULE 13a-14(a) OF THE EXCHANGE ACT

I, Larry T. Kuglar, certify that:

1. I have reviewed this report on Form 10-K of SouthCrest Financial Group, Inc. (the “Registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the Registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purpose in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluations; and

d) disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting.

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date:  March 31, 2008

/s/ Larry T. Kuglar

Larry T. Kuglar

Principal Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO RULE 13a-14(a) OF THE EXCHANGE ACT

I, Douglas J. Hertha, certify that:

1. I have reviewed this report on Form 10-K of SouthCrest Financial Group, Inc. (the “Registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the Registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purpose in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluations; and

d) disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting.

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date:  March 31, 2008

/s/ Douglas J. Hertha

Douglas J. Hertha

Principal Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that this Annual Report on Form 10-K for the year ended December 31, 2007 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of SouthCrest Financial Group, Inc.

This 31st day of March, 2008.

/s/ Larry T. Kuglar

Larry T. Kuglar

Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that this Annual Report on Form 10-K for the year ended December 31, 2007 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of SouthCrest Financial Group, Inc.

This 31st day of March, 2008.

/s/ Douglas J. Hertha

Douglas J. Hertha

Chief Financial Officer